The Economic recovery does not finish convincing the bank, which is hardening the conditions to give credit to finance real estate promotions. According to different sources in the sector, entities are demanding levels of prevent of up to 50% and, in fact, several projects have had to be canceled due to lack of funding.
The sale of homes has skyrocketed in 2021 due to the impounded demand in the 2020 stoppage and due to the interest that Spain arouses among the large investment funds international markets, but the banks are not very confident that this can be sustained for long, given the fragility of the recovery and its dependence on the arrival of European funds. Hence, you want to play it safe and request pre-sales to ensure the success of the promotions.
The sources consulted explain that this is a generalized attitude in the sector, although it is especially evident in some entities such as CaixaBank, Bankinter O Unicaja, which until now had a more open hand with the promoter business.
The bank does not want more risks before the one that is looming
In addition, the problems of the financial sector must be taken into account. Thanks to the moratoriums and, above all, to the credits guaranteed by the ICO, defaults and refinancing of companies have been postponed, in a ‘kick forward’ reminiscent of the outbreak of the housing bubble. Given the uncertainty about how far the delinquency post-pandemic, they do not want to risk an increase even more financing real estate developments without measure.
In this sense, the ECB and the Bank of Spain have repeatedly asked banks to increase their provisions (money that is set aside to cover possible losses) before which may come with the expiration of the ICOs and other credits affected by the pandemic. However, the sector has ignored it and has reduced these provisions in the first quarter because their models indicate that they are sufficient.
According to an expert in the sector, for a bank it is better to turn off the tap on new credit than to provide more provisions. First, because granting less credit means having less income and gradually, while provisioning implies assuming a cost -which reduces the benefit- all at once. And secondly, because managing the provisioned portfolios is very complicated, and if the entity sells them to a fund it has to sign up losses.
There is a final factor behind this credit tightening: if banks finance little, there is less new work; and if there is less new work, the prices from living place they do not go down in the market; and if the prices do not fall, the loans they have given today are better (the guarantee is worth more) and they do not have to provision them. Again, they sacrifice possible future income in exchange for avoiding losses today.
The first example, the Ares fund
A very popular example of promotions that have had to be canceled due to lack of bank financing has recently starred Ares Management, one of the largest funds investing in the Spanish real estate sector.
Ares has had to cancel four promotions for the rental of 474 homes in total that it had projected for a value of 73 million euros, due to the refusal of financial institutions to grant it the necessary credit, according to El Confidencial. The sources consulted assure that there are many more examples on a smaller scale in different Spanish cities.