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Spain Foreclosure Seizure for Needy Seen Violating EU: Mortgages

sfgate.comMay 13, 2013

By Sharon Smyth

May 13 (Bloomberg) -- Spanish politicians trying to cushion the blows of austerity plan to seize foreclosed homes to house the needy, discouraging foreign investment and threatening to violate terms of the European bailout of the country’s banks.

The regional governments of Andalusia, with the most vacant properties in the country, and the tourist destination of the Canary Islands, are planning to expropriate foreclosed properties for as long as three years to house displaced families. The European Commission has asked Prime Minister Mariano Rajoy’s government for details on the regions’ actions, to ensure they don’t clash with the country’s commitments.

“It’s third world, populist and akin to policies more commonly seen in Bolivia and North Korea,” said Mikel Echavarren, chief executive officer of Irea, a Madrid-based restructuring firm that has advised on 22 billion euros ($28.6 billion) of refinancing. “Investors fear it will set a precedent and other regions will follow suit, making Spanish real estate investment an extremely high-risk activity.”

Rajoy’s People Party has pushed ahead with the harshest austerity measures in the country’s democratic history to tame surging borrowing costs that last year pushed Spain to the verge of a bailout. While seizing homes may soften the impact, it threatens to complicate the government’s task of meeting the terms of a 41 billion euro rescue package for the banking sector, including selling 50.8 billion euros of soured property assets transferred to the nation’s bad bank with a return for its investors.

 

'Key Element'

“We are talking about a key element, a very important element which concerns the financial assistance that banks have been given by the European Union,” Deputy Prime Minister Soraya Saenz de Santamaria said on Friday at a press conference in Madrid. That agreement “obliges us to fulfill certain obligations, pacts and memorandums. We all have to work together on the issue of foreclosures to adopt balanced decisions.”

Property investment in Spain already is a risky proposition after a decade-long property bubble burst in 2008, tipping the nation into recession and pushing unemployment to a record 27 percent. Around 400,000 foreclosures have been ordered in Spain since the start of the crisis, sparking a wave of demonstrations that have seen protesters picket politicians’ homes to shame them over evictions.

 

'Terrible Idea'

Spain’s Economy Minister Luis de Guindos said the regions’ actions will choke off mortgage lending and the chairman of Spain’s largest bank described it as a “terrible” idea.

Andalusia, the most populous of Spain’s 17 autonomous regions, passed the decree last month, allowing it to seize residences that have been foreclosed on by banks and developers to house families who’ve lost their homes and meet certain low- income requirements. In exchange, lenders will receive 2 percent of the properties’ value per year in compensation and can recover legal possession after three years, according to the April 9 decree.

The government also can impose fines of as much as 9,000 euros on dwellings that have been unoccupied for six months in an attempt to force them to be made available for rent. Andalusia has 637,221 empty units, according to the National Statistics Institute.

Given the state of Andalusia’s economy -- joblessness among under 25-year-olds stands at 66 percent -- it’s not surprising the measures were introduced, said Carles Vergara, a Barcelona- based professor of Financial Management at the IESE Business School.

 

'Blindness, Desperation'

“The measure has not been thought through properly and seems more the result of blindness or desperation,” he said in a telephone interview.


Back to May 2013 Archive

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