Breakingviews- Spanish property market is back from the dead

Fri Sep 6, 2013 2:08pm IST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

By Fiona Maharg-Bravo

MADRID, Sept 6 (Reuters Breakingviews) - Ever since Spain’s massive property bubble burst in 2008, U.S. funds have been scouring Madrid for property bargains. After years of frustration, a few are now clinching deals. But the floodgates aren’t opening yet.

Bankia (BKIA.MC), and Catalunya Banc have sold their property management arms to foreign funds in recent weeks and La Caixa will soon follow suit. This allows the funds to get first-hand knowledge of the market before committing more capital. Cash-crunched sellers like the city of Madrid have also sold large property portfolios. And Spain’s bad bank, Sareb, which acquired 50 billion euros' worth of dud real estate loans and assets, recently sold its first batch of properties to a vehicle it co-owns with investment firm H.I.G. Capital.

These sorts of deals signal that Spain may be nearing the bottom of its housing bust. It isn’t there yet. Some of the biggest holders of real estate in Spain – the country’s banks - have barely made a dent in their stock. In some cases, the stock is still growing due to ongoing foreclosures. More provisioning may be needed. La Caixa recently hoped to sell a portfolio of 12,000 flats before the deal reportedly fell through on price. The bad bank is still getting its house in order and is unlikely to jumpstart the market this year. It aims to get the best price and has 15 years to unload its stock. Since the majority of its capital is in the hands of the country’s banks, few expect it to sell at rock-bottom prices.

Meanwhile, buyers complain that banks have tightened credit conditions. Two out of every three residential sales in June were done in cash, according to the General Council of Notaries in Spain.

Buyers won’t emerge in force until job creation resumes, which looks uncertain given Spain’s weak recovery. Prices still look expensive even though they have fallen 38 percent since the peak. An average family needs close to six years of income to buy a house, according to the Bank of Spain. But private equity bargain hunters rarely wait until the market hits bottom before circling. Their tentative presence shows that the market is at least thawing.

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CONTEXT NEWS

- TPG is close to acquiring a 51 percent stake in the real estate servicing arm of La Caixa for 189 million euros, according to several press reports. It follows a string of similar deals. Bankia, the state-owned lender, sold its property management arm to U.S. fund Cerberus for up to 90 million euros. Catalunya Banc did a similar deal with two U.S. investment funds.

- Goldman Sachs (GS.N) private equity and Azora, the investment group, bought residential flats from the city of Madrid for 201 million euros on Aug. 12. Madrid also sold a portfolio of 1,860 flats to Blackstone (BX.N) for 126 million euros in July. These followed the first sale of a package of assets valued at 100 million euros by Spain’s state-owned bad bank to H.I.G. Capital in a low-tax investment vehicle.

- Reuters: Spain's La Caixa finalising sale of property firm to TPG -source [ID:nL6N0H112Q]

- For previous columns by the author, Reuters customers can click on [BRAVO/]

(Editing by Pierre Briançon and Sarah Bailey)

((fiona.bravo@thomsonreuters.com)) Keywords: BREAKINGVIEWS SPAIN/PROPERTY/

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