Banks to Lower Property Prices by 20%?

Potential buyers are often surprised that bank repossession properties in Spain are not discounted to the extent that they expect. It is alleged that Spanish banks simply prefer to hold them on their books rather than sell them at a heavy loss, as the properties appear on their balance sheets at a higher value than their actual market worth.

However, this could be set to change as the Banco de Espana (Bank of Spain) are forcing banks to have monetary reserves of 20% of the properties valuation available, in cash, once they have been on their balance sheets for over one year.

This means that banks will need to either allow for enormous amounts of cash to cover the value of these properties or, more realistically, sell the properties before it gets to that stage. The most obvious way to do this would be to drop prices massively.

Therefore, this could potentially lead to a situation whereby bank repossessed properties, which are already reduced in price, fall further in 2010. However, Pedro Perez, who is the Chairman of the G-14 association of largest developers in Spain, stated that this measure could cause prices to fall by even more than 20%.

Source: El Mundo newspaper, 6th November 2009