Monday, January 28, 2013

How does that work? - rural mortgage version

We wrote in a piece last September that the sudden bump in mortgage issuance relative to property sales (of all types) was 'Likely the last vestiges of undercapitalized late entry pre-sales taking possession of their homes..'

Sounds good in theory, but further investigation proves we were looking in the wrong place.

On the left is a graph showing the progress of both rural property sales and mortgage issuance for the same indexed to March 2007, accompanied by a bar chart representing what percentage the latter represented of the former. A bit of background would in order.

The government of Spain may periodically go on about money stashed away in 'fiscal paradises' and such, but the one they never mention is their own rural property market. Between ridiculously low tax valuations that allow a mere token price to be registered on the deed and the amazingly paper-light agricultural income tax reporting requirements of Hacienda, those huge amounts of cash money made in the real estate boom could be made to disappear without ever crossing a border. And rest assured,  they were.*

But why, all of a sudden and as property sales collapsed, do we see rural property mortgage issuance almost triple relative to actual sales? And how many of these post-boom mortgages were among the 54 billion euros worth fobbed off on SAREB at the end of December?

Suggestions welcome in The Comments Zoo. Evil conspiracy interpretations admitted (this time only).

*And we aren't even mentioning the aversion real end users - Spanish farmers - have towards taking out bank loans. The countryside is a cash universe.

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