Lack of clarity on Spanish property valuations, as seen with Aisa (Actuaciones Actividades e Inversiones Inmobiliarias), will continue to be problematic until next year, market experts told dealReporter.
Experts surveyed by this news service said that in 2009, vulture funds and other bargain-hunters will begin to buy assets from administrators, providing a rock-bottom floor to value other properties.
An expert in property law said that the “underlying problem” in the market is that many valuations are theoretical ones as the flow of deals is so light nowadays that it is extremely difficult to find prices to use as a realistic benchmark for valuation.
Meanwhile, a second expert in valuations said that lack of clarity on valuations has directly caused situations such as Aisa, where the value of the company’s property portfolio is unclear.
Shares in the company have been suspended for many weeks as its auditors will not sign off on the property valuations in its 2007 accounts.
A person close to Aisa said that the situation remains a deadlock, adding that there are “differing opinions” on how its land should be valued.
In 2007, Aisa valued its land at EUR 620m. It recently cut the valuation to EUR 220m.
One of Aisa’s creditors, which wants the company to file for administration, says the land should in fact be valued at EUR 32m, according to press reports.
Spokespeople for Aisa and its auditors, BDO Audiberia, declined to comment for this article.
A third expert, who specialises in property M&A, said that there is enough sustainable demand for new housing in Spain to underpin the market in the longer term, but added that the market will not fully recover until the big overhang of properties already for sale starts to be absorbed.
Meanwhile, the valuations expert said that it is difficult to see any real recovery in the sector as a whole until the second half of next year when property deals start to come through at rock-bottom prices.
The expert said that valuations are currently “much too conservative,” but will start to go up again in the medium term. He added that large numbers of smaller property companies have gone into administration in the last few months and the numbers will be “surprising” when they are eventually released into the public domain.
Meanwhile, the legal expert said that on average it will take some 12 months for administrators to put assets on the market. This expert said that the process is always a complicated one and administrators will try to save as many companies as possible before holding fire sales.
Both experts agreed that once these properties are released to the market and bought by bargain hunters, including vulture funds, it will be much easier to provide reliable valuations for the market as a whole, even if the prices are steeply discounted.
The third expert said that the valuation problem is most acute for land in rural areas, adding that many of the old valuations in this area reflect extremely speculative views.
In the residential sector, the legal expert said that banks have scaled back their mortgage lending because a number of their existing clients are finding it difficult to pay their loans and because of underlying liquidity issues.
The expert said that it is still possible for people to borrow money, but the terms will not be nearly as generous as they were during the boom years. Before prices began falling, it was relatively easy to get 40-year mortgages or loans for more than 100% of the valuation of a home.
The valuation crisis has led to a dilemma for listed property companies in Spain, many of which have had to re-write the value of the properties on their balance sheet. In a number of cases, re-evaluations have triggered clauses forcing companies to renegotiate their debt structures.
The legal expert said that it is difficult to predict which large companies will follow the giant Martinsa-Fadesa into administration.
The expert said that in his opinion the companies which will be safest are those who have diversified, those who are backed by a strong and liquid group of shareholders and those who specialise in industrial and office space, rather than residential building.
Story from FT.com