REFORM IN SPAIN: IMPACT ON REAL ESTATE
- As of 30 June
2011, Spanish banks owned distressed real estate assets (linked to
developer loans) amounting to around 88 billion euros (land positions
and ongoing developments) and 87 billion euros (completed developments
and housing units).
- The Spanish
Government believes that the uncertainty concerning the valuation of
these assets makes it harder for Spanish banks to access the wholesale
financial markets and, thus, it is key to ensuring that the banks’
asset valuations are in line with market values.
NEW REQUIREMENTS: ADDITIONAL 50 BILLION EUROS WRITE-DOWN
- The Spanish
Government has approved Royal Decree-law 2/2012 on the Banking sector
reform (published on 4 February 2012), which imposes on Spanish banks
the obligation to make an additional write-down for a total 50 billion
obligation affects loans and assets (acquired by way of mortgage
foreclosure or as payment of loans) related to real estate development.
assets: a specific provision is established for an amount close to 25
billion euros; and a 20% (land positions) and 15% (ongoing
developments) capital buffer is established (on account of non-distributed
profit, capital increase or conversion of hybrid products), for an
estimated amount of around 15 billion euros.
assets: a general 7% provision, estimated at around 10 billion euros,
- The deadline
to implement those measures is 31 December 2012. Banks involved in
mergers since 1 September 2011 will benefit from a 12-month extension.
- Coverage to
exposure: upon implementing those measures, the banks’ coverage to
exposure for their distressed assets will increase from 31% to 80% (land
positions), from 27% to 65% (ongoing developments), and from 25% to
35% (completed developments and housing units).
impairment situations: losses derived from the impairment of tangible
assets, real estate investments and inventories will be disregarded
during 2012 for the purposes of calculating the losses incurred by a
Spanish company to determine whether or not it is in a capital
impairment situation for corporate purposes, as the effects of Royal
Decree-law 10/2008 of 12 December, have been extended to 2012.
IMPACT ON REAL ESTATE
measures will force banks to make a substantial write-down of 50
billion euros in record time (by 31 December 2012), in addition to
that made between 2008 and June 2011 (of around 66 billion euros).
- From a real
estate perspective, these measures are a significant incentive for
banks to place their real estate assets in the market.
- In addition,
banks involved in mergers must disinvest in real estate assets within
three years following the merger, according to a disinvestment plan to
be included in the relevant merger authorisation application (to be
filed by 31 May 2012).
6 February 2012
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information contained in this Newsletter is of a general nature and does
not constitute legal advice