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Spanish property developers and banks go head to head

Developers claim that banks are undermining their capabilities to stay in business by deliberately selling property that they have repossessed as prices that are too low.

The developers say that they cannot make a profit if they try to compete with the banks. They also claim that banks are offering preferential mortgage terms on their properties and thus making the properties offered by developers even more expensive.

Metrovacesa, one of Spain's biggest developers, said it is having to offer discounts of up to 55% on new homes on the Costa Blanca and Costa del Sol and up to 35% in Barcelona and Madrid in order to compete.

Now the banks are hitting back and claiming that they can't handle the increasing number of properties that they are taking on from developers when they default on loan payments.

Typical is Spain's largest bank Grupo Santander which picked up some 1,300 homes last year when developers to whom it had lent money defaulted on their loans and the bank agreed to swap debt for the property.

It has sold some of them to its employees for a 20% discount and has now launched a website to sell 950 new homes at a 20% discount.

This could badly affected developers who have been able to offer property as an offset against their debts. The developers association has called on the Spanish government to buy up surplus new property but politians have rejected the idea.

Figures from the Bank of Spain show that the value of outstanding loans to Spanish developers has gone from just €33.5 billion in 2000 to €318 billion in 2008, a rise of 850% in 8 years.

If you add in construction sector debts, the overall value of outstanding loans to developers and construction companies rises to €470 billion, a figure that amounts to almost 50% of Spanish GDP.

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