Property discounts in Spain and Tenerife,are they all that they seem?
There is no shortage of price promotions being touted, for example Metrovacesa’s December promotion of 1,500 homes with alleged discounts of up to 52%, and Banesto’s November promotion of 1,200 homes with alleged discounts of 40% (Metrovacesa is one of Spain’s biggest developers, and Banesto one of its biggest banks).
But when real estate experts what they thought of the discounts, scepticism was the order of the day. “One has to interpret these discounts and ask what levels they are calculated fromDi,” said Ernesto Tarazona, Corporate Recovery Director at Knight Frank España.
After all, what good is a discount if it is applied to some unreal starting price? According to the experts consulted for article, in many cases today’s discounts are based on the demented valuations used at the height of the boom, arguably irrelevant in today’s straightened economic circumstances. Supporting this position is a recent report on the Spanish property market stated that prices are still close to 30% over-valued, and the valuations used by banks and savings banks (cajas) “do not reflect true values and result in a general over-valuation of property.”
That said, you might still get lucky and get the odd bargain, especially holiday homes on the coast.
Just look at the published accounts of developers for the third quarter of this year, says the article. Their gross margins are still positive, implying that they are selling above the crazy prices they paid for land in the boom, if they sell at all, that is.
The real question is why are prices so high, even with the alleged discounts? Because neither banks nor developers are prepared to sell at a loss whether in Tenerife or Barcelona, explains the article. New accounting rules from the Bank of Spain may change that, but for the time being the discounts on offer are not really discounts at all, at least not compared to today’s market prices.
For my money I would say that will all change in 2010, one way or another.
