Empty Buildings Haunt Spain Amid Real Estate Crash

Published February 16, 2012 1:18PM (EST)

SESENA, Spain (AP) — Towering apartment blocks, complete with swimming pools and playgrounds, loom over empty streets, weed-filled lots and gaping excavation pits. The lone bank in this mega-development nicknamed "Manhattan" closed two years ago and most storefronts are bricked up.

Apartments galore are for sale here and prices are plunging.

More than 13,000 apartments were supposed to go up to create a mini-city for 30,000 people just 45 minutes outside of Madrid. But only 5,100 were built, many are uninhabited and regular Spaniards who bought them as investments are now competing to offload them for huge losses.

Spain's real estate crash and economic implosion have turned what was supposed to become a vibrant suburban paradise for young Spanish couples and their children into one of the most visible monuments of the country's boom gone bust. Such modern-day ghost towns have become a familiar part of the Spanish landscape, abandoned shells left to slowly decay.

The number of foreclosure proceedings skyrocketed during the economic crisis. Nearly 530,000 were granted by courts from 2008 through September of 2011, most to banks taking homes, housing developments and vast tracts of land for residential and commercial real estate projects that may never become reality.

The banks were ordered this month by the recently elected center-right government to set aside billions of additional euros to cover these toxic real estate assets valued at euro175 billion ($230 billion) just as Spain teeters on the edge of what could be a lengthy recession.

Experts say the government's new provisions for real estate holdings will almost certainly prompt the banks to sell holdings at firesale prices, forcing property values down much more than the 22 percent that they have dropped since the financial crisis hit Europe in 2008.

In Sesena and other ghost developments around Spain, some banks are already trying to unload finished apartments at discounts of up to 50 percent of their original prices. But that's hurting untold numbers of Spaniards who invested savings and took out big loans to buy property they thought they'd be able to sell for more money or rent.

Satellite cities that never ended up with populations aren't Spain's only problem. Around Madrid and across the country, there are vast subdivisions carved out of farmland complete with paved roads and streetlights but only weeds where houses were supposed to be built. Half-built apartment buildings stand idle in suburbs rich and poor.

With unemployment at a eurozone high of 23 percent, there are simply fewer buyers — and young Spaniards are increasingly trying to find work abroad. In December alone, sales were down 25.3 percent compared to the same month in 2010, the government reported Friday.

"This is the problem: Who is going to buy these homes?" said Jose Luis Alvarez Arce, head of the economics department at the University of Navara.

It could take years for the banks to clean up their assets and relieve a growing credit crunch affecting individuals and businesses, some of whom never got caught up in the Spanish real estate craze in which most citizens bought real estate as an alternative to savings accounts, investment funds and retirement plans.

The boom and bust has been so profound that the impact is changing the Spanish mentality about real estate, said Fernando Encinar, head of research at Spain's most popular real estate website, Idealista.com.

Younger Spaniards, he said, for the first time don't believe parents who have told them for decades that they should always buy instead of rent and treat real estate as an investment that will never go bad. The age-old saying in Spain that prices never go down or not for long "is now broken," Encinar said.

"We're starting to see people who must sell with losses they would have never accepted in the past," Encinar said. "And some of these homes are never going to be sold."

Spain's development ministry estimates there are 687,000 unsold new homes for sale. Other studies put the number as high as 1.6 million in the nation of 47 million, where 80 percent of the population already lives in owned homes, a rate much higher than nations like France, Germany, Italy and the United States. There is no government figure for used homes for sale, but estimates range into the millions.

"The value that the banks put on the property just isn't real," Alvarez said. "And as a result the banks don't trust each other, they aren't lending to each other and if they don't lend to each other there's no credit for Spaniards."

Juan Carlos Caballero bought his 3-bedroom Sesena apartment with a terrace overlooking the residents' pool in 2008 for euro185,000 ($240,000) after his retired father jumped into the real estate action to buy the same style of apartment at a lower pre-construction price.

Father and son were both convinced housing prices would continue to rise as they had since the mid-1990s. They now are stuck with homes in a development that doesn't have a drug store or good public transport to Madrid.

The only pizza restaurant is open just three nights a week and on Saturday afternoon when there are enough clients to justify operating, and the roast chicken takeaway only opens Friday nights and Saturday afternoons.

Apartment blocks have ground floor commercial space for small businesses so people can walk to buy whatever they need. But most units are sealed by brick walls scrawled with cell phone numbers of owners offering to sell or rent them.

The 33-year-old Caballero, an unemployed chauffeur, last rented his apartment for euro750 ($980) a month two years ago, and is now asking just euro500 ($650) per month. Similar apartments are being offered at euro375 ($490) monthly, but he's asking for more because his is in immaculate condition with new furniture and appliances.

His father, Jesus, is offering his apartment for sale at euro108,000 ($140,000), meaning he stands to lose tens of thousands of euros in a bid for retirement cash now that he's reached age 67. But banks selling foreclosed property in Sesena have smaller apartments listed as low as euro65,000 ($85,000).

"Selling or renting now is like winning the lottery," said the younger Caballero, who lives with his parents and shells out euro500 ($660) of his euro700 ($900) monthly unemployment check to pay his mortgage and other apartment costs.

In the town of Yebes more than an hour's drive from Madrid, 9,000 apartments and small houses were supposed to be built in a bucolic country setting next to a high-speed train station so workers could get downtown in less than 20 minutes.

But only 1,500 were finished before developers went broke, 3,000 people live there instead of the projected 30,000 and government officials never launched the train service.

"The station is built, the trains are bought but they never started running," said Mayor Joaquin Ormazabal.

The euro240,000 ($315,000) home he bought would now sell for about half the price. The population in Yebes is increasing somewhat as banks sell off foreclosed properties at low prices, but Ormazabal said it could be decades if ever before the rest of the land is developed.

"Nothing's going to happen until the Spanish economy comes back," he said. "Right now no one is thinking about building anything in Spain."

Carlos Velazquez, Sesena's mayor, said the development fiasco has one positive side: Spanish real estate speculators aren't snapping up apartments anymore in his town.

Those that are buying "are people who are going to come here to live, pay their taxes and want the place to be nice for their children."


Harold Heckle contributed from Madrid.

By Salon Staff

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