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19 October 2008

Spain’s property market slump puts pressure on “cajas”

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by Gill Montia

Spain's property market slump puts pressure on

The prime minister of Spain, Jose Luis Rodriguez Zapatero, has warned that the downturn in the country’s property market could have a severe impact on small Spanish banks.

Regional banks and small lending institutions, known as cajas, are heavily involved in local property markets, having lent to both developers and mortgage borrowers.

Cajas are particularly vulnerable because many have launched their own property ventures.

Mergers and takeovers are expected in the months ahead with some analysts predicting that Bank of Spain will eventually be forced to bail out some small lenders as falling house prices plus the impact of the credit crisis on Spain’s wider economy create sharp rises in mortgage arrears and defaults.

Almost 800,000 homes were built in Spain last year, and around 900,000 new homes are expected to be left unsold at the end of 2008.

The country’s leading banking group’s Santander and BBVA have so far ridden out the credit crisis better than many of their European rivals but both will have substantial exposures should the Spanish property market take a severe downturn.

Statistics on Spanish property prices vary widely; last week, valuations firm Tinsa reported that house prices fell by an annual 4.9%.

In September, Spain’s Housing Ministry reported that house prices fell by 0.3% between April and June, and at the same time APCE, an association of Spanish property developers, reported that house prices had fallen by 15% since September 2007.

Meanwhile, British people who financed their Spanish property purchases using mortgages taken out in sterling, continue to struggle as the euro remains high.

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