Hearing the slogan "Spain and properties repossessed by the bank", many investors rub their hands. In fact, there are great opportunities in this market sector and by tackling the topic skillfully, you can earn a lot of money. The key is, as always, knowledge. Without in-depth knowledge of the subject, you can very easily instead of buying an opportunity, buy yourself a trouble.
Why are bank repossessed properties tempting and who buys them?
Because they seem to be cheap. It is worth noting, however, that most of these are properties that the owners did not manage to sell before being seized by the bank, which puts their market attractiveness into question. Banks usually list the property at a price equal to the value of the loan, so bank foreclosure property can be between 40 and 60% of its original value. Two questions arise here: whether the starting price from the real estate bubble in the first decade of the 21st century was adequate to the utility value of the property and what is the real value of the property today.
There are two groups of investors interested in Spanish bank-seized properties:
- People trying to buy a flat or house for themselves cheaply.
- Investors who, after buying real estate from a bank, intend to sell it at a profit.
The two groups are fundamentally different. While for an investor it is most important that the property is in a good location and nobody lives in it (the problem of "okupas" has been a hot topic in Spain for some time), someone looking for a flat for himself will want to see the property, check its technical condition, etc.
Property in Spain repossessed by the bank – possible difficulties
And here we have the first difficulty to overcome, because properties that are seized by a bank in Spain usually cannot be visited before a decision to buy is made. The bank informs the person concerned about the location, housing estate, street on which the property is located, informs about the size of it, floor and sometimes shows some photos taken from the outside. It does not, however, allow you to simply enter and see the apartment or house. This is an insurmountable obstacle for many people.
However, if you manage to enter the apartment, the view (and smell) are often unappealing. In Spain, the bank seizure process takes around two years. If the previous owners had moved out when they received the eviction notice, the property remained empty all that time, which had a bad effect on its technical condition. Often, the previous owners, being aware that they would have to give the apartment back to the bank, took out everything that was of any value (including sockets). Many people looking for a house or an apartment for themselves at this stage resign from the bank's offer.
It may also turn out that the previous residents did not move out. Then the matter becomes even more complicated, because the current Spanish law – although it is hard to believe – protects wild tenants. It may take months for the new owner to dispose of them legally.
Investment funds have special rights
An investor interested in a quick resale is a more attractive client for a bank, especially if it comes in the form of a large investment fund. This must be borne in mind when considering the purchase of real estate that has been taken over by Spanish banks.
Funds have special rights in banks, because they buy back real estate in packages, they are not interested in retail purchase. Such a fund will carry out a detailed legal and technical check of the real estate seized by the bank, find out about the potential of its location, calculate the increase in the value of the property over time, and then negotiate strongly with the bank. If it obtains an attractive price, it will buy back, for example, half of the housing estate that the developer – because os his bankruptcy – was unable to complete. The fund will finish the construction, often significantly raising the standard of the estate, will launch its marketing machine and within a few months will sell most of the flats with high profit to end customers.
Such transactions occurred frequently during the 2010 financial crisis. There is no indication that the local developers building their projects during the pandemic will face similar problems. Banks do not withhold their financing, and potential buyers are very active, despite pandemic restrictions, so business is booming.
Financing of real estate that has been repossessed by the bank
It is also booming thanks to the relatively cheap loans and the threat of negative interest hanging over the people holding their money in bank deposits. Investing in Spanish real estate seems to be a very reasonable solution in this situation, and those seized by banks seem particularly attractive.
Unfortunately, not all Spanish banks are willing to re-finance the properties they have taken over. They prefer so-called cash customers. It also happens that, despite good intentions, the bank cannot finance its own real estate. Why? Since the seized property has been financed by a given bank a few or a dozen years ago and now it does not meet the conditions necessary for its re-financing. What has changed? The most common problem is missing documentation or changes in legal and / or town planning regulations, which make the real estate “illegal”. As such it cannot be financed by the bank. It sounds absurd, but it's a real-life example.
How to buy a bank-seized property in Spain?
There are several ways to buy a property that has been seized by a bank, but we will distinguish 3.
Method number 1 - good contact at the bank
If you have a good contact at the bank, and thanks to it you have access to "top secret" information, you can check the legal status of the property with the help of an attorney or broker. This step should never be omitted, guided by the thought: "if the bank granted a loan for this property once, it is certainly fine." We already know that it is not obvious, so only after getting the green light from your lawyer or broker, you can start negotiating the price and possibly finalize the transaction.
Method number 2 - auction
The second way is to take part in an auction. You should be aware that the so-called world of "subasteros" (auction in Spanish is called subasta) is very hermetic and by not being one of them, you will not succeed there. Subastero is a specific type of man, profit-oriented and playing only on himself. However, if the subasteros feel threatened by the "new", they will quickly form a coalition against him and bid in such a way that the "new" will sooner or later give up. Once I had the opportunity to read a book written by one of the subasteros, "Diario de un subastero" ("The Auctioneer's Journal"). Apart from its dubious linguistic values (I read the manuscript before the editorial office, and the book was never published), after this reading I lost my desire to participate in auctions personally.
Information for people interested in this topic: some time ago, auctions of Spanish properties that have been seized by a bank moved to the Internet, so you no longer must sneak into the favor of a subastero to participate in them.
Method number 3 - real estate agencies
A third way is offered by real estate agencies that display on their website offers of Spanish bank-seized properties. Naturally, there are only those offers that have "left" the bank, because the sequence is as follows: when a bank takes over an interesting property, it first looks for a potential buyer among its employees. Then it sends out this offer to its clients and only if there is no one interested in both groups, the property goes to the free market and can be offered by an agency.
To sum up: buying a bank repossessed property in Spain should always be done under the supervision of an experienced lawyer or a trusted broker. Especially if the buyer is a foreigner and does not speak Spanish.