Bank-owned houses and flats in Spain

Have you ever heard of property in Spain that can be bought for pennies? This was certainly the case for Spanish houses or flats auctioned off at the bank. Find out how property is auctioned in Spain and whether it is profitable.

Spanish property indebteness

The economic crisis in Spain has had a very strong impact on the Spanish property market. It all started with a huge mortgage boom in 1994-2007, when the Spaniards took out mortgages in large quantities. In the 1990s, the number of issued building permits multiplied frantically, and at the same time, the drop in interest rates on housing loans increased the availability of credit in a very short time. The construction sector became a very important driving force for the economy and the favourable economic situation encouraged Spaniards and banks to make bold decisions. Between 2002 and 2005, annual increases in property prices exceeded even 10%, which means extremely high increases in the meterage price.

Unfortunately, after the ''boom'', the construction sector collapsed. Spain faced an economic crisis in 2008-2009. the property market collapsed, which caused the prices of flats and houses bought with loans to fall rapidly. The following years saw attempts to rescue the indebted country that is struggling with autonomous conflicts, unemployment, bank debt problems and political instability.

During the ''boom period'', the Spanish bought houses and flats under mortgages spread over a period of up to 50 years. Amid the rising interest rates, loan instalments started to grow and the economic crisis manifested itself in a very high level of unemployment. At the same time, the prices of newly purchased flats fell rapidly, which made their sale unprofitable. Problems with the repayment of loans led to high debt. Banks started to occupy indebted properties in Spain and put them up for bank auctions. Under these conditions, property could be bought at 70%, 50% and sometimes even 40% of its original value.

Several hundred thousand evictions were carried out in Spain during the years of crisis! Banks were collecting several hundred units a day from indebted owners. In order to recover at least some of the money, the banks auctioned a very large number of properties, but the market was saturated and therefore low starting prices had to be set. Currently, the Spanish property market is already stronger than in the main years of the crisis. The period of almost "mass" property acquisitions is already over. However, there are still offers of properties put up for auction. Thus, you still have the opportunity to buy a property at a much lower price than the market price of the property.
 

What does a property bank auction in Spain look like?

Bank auctions are open, which means that anyone can join. As long as there are no specific restrictions for a particular auction, it is enough to meet the following general conditions:

• The buyer must be of legal age and have full capacity to enter into legal transactions.
• The buyer must have the financial capacity to purchase the property or at least the creditworthiness - banks in Spain then offer very attractive conditions for crediting the property (sometimes 100%, but most often 60-70% of the loan value).

Most often, you will have to make a deposit before you can bid. If you win the auction, you will be required to pay the rest of the money within the indicated period. If you win the auction, but do not pay the amount due within the deadline, you lose your deposit. If you do not win the bidding, you will receive a refund of your deposit. When deciding to buy a property from the auction, you must be ready to make a quick decision. Attractive properties at auctions are sold right away. 

Is it worth buying a property from a bank auction?

Of course, the biggest advantage of property put up for sale at bank auctions is the chance to get a low purchase price - purchase prices far below their market value and prices of competitive properties. Before we clearly state that this is the best way to buy a cheap property, it is worth answering these key questions:

• Is the purchase of an auctioned property always equal to a low price?
• What are the risks associated with the purchase of an indebted property?

Not every house put up for a bank auction is put up far below the market value. The starting prices of luxury properties or those located in very attractive locations are most often displayed slightly below their market value. However, there are still people who are willing to buy them. The lowest prices apply to properties which will not find buyers on the open property market - not very attractive flats and houses.

However, even in the years of the crisis, not all properties have lost much value. Properties located in attractive locations maintained their value even during the crisis years. The biggest price reductions affected properties located in worse districts, properties in poor technical condition - devastated or intended for renovation, and those with unclear formal situation. Nevertheless, these types of properties are mainly found at bank auctions. Their prices may be encouraging... but keep in mind that a cheap house not always turns out to be the greatest investment. We know of many cases of people who bought properties at an auction on their own and in the following years were forced to bear huge costs for renovation or the deadline for obtaining the full right to dispose of the property was very delayed due to the fact that the formalities were not completed before.

It is also worth answering the question whether the initial price at an attractive level of 70% of the property value from the boom of 2000-2007 corresponds to today's value of the property and its functional properties? Or is a large reduction in price a marketing move by a bank that wants to get rid of the property?

What are the risks of buying a property at auction?

In case of a poor technical condition or unattractive location, the property purchased by us will require additional costs or lose value, and this will involve "only" a lower rate of return on investment (if it is possible to recover the money invested at all). However, the most difficult situations are those with unclear legal situation of the property and debts of the previous owner. In such cases, we have to reckon with long months of rectifying the matter in the appropriate offices. And this requires excellent knowledge of consumer rights and regulations related to the property market. Often we cannot do without the help of a Spanish lawyer, which will significantly increase the investment costs. Therefore, before proceeding with the auction, it is worth going to the competent court to obtain the property records to know its formal status. Let's not forget about Spanish style of work and bureaucracy in this country. Why then, instead of enjoying the beautiful beaches and tourist attractions of Spain, take on such a heavy burden?

It is also worth mentioning that auctions are of different nature. For example, you may find yourself auctioning a property without obtaining the right to use it. This means that the winner of the auction becomes the owner of the property, but cannot use it because it is occupied by tenants. If you want to avoid such a situation, choose the auctions marked "COMPLETA".

Keep in mind that the eviction process itself is time-consuming. According to the Spanish law, eviction can take up to 8 months. The situation can get even more complicated if the property was rented and the owner of the property was not the only resident of the property.

We would be lying if we said that bank auctions are not the source of perfect opportunities! We are well aware of the Spanish property market and aware of how many properties could be bought at a bargain price. However, at present bank auctions are not the main source of property acquisition. And such a purchase involves a huge risk. If you do not want to take it on yourself, contact us and we will advise you to purchase an attractive property within the budget you have indicated. We will help you with all the formalities, so that you can invest your capital well and realise your dream of your own house in Spain.