Monday, April 28, 2014

Why I think property prices in Spain will drop much further

Basically, there are two ways to make money:

  1. take it from other people, by forcing them to sell stuff below real value (eg russian style privatization) or pay higher than real value for something (eg monopoly power).
  2. provide something of value that people are willing to pay for

My guess is #1 is mostly what’s going on in Spain. This is why I’m skeptical whether the economic improvements over the last year will really translated to stabilized property value. After all, if property prices increased, almost everyone would benefit, which wouldn’t really help the wealthy all that much.

Do the banks need higher property values? Not really. They just need people to be sufficiently employed so that they can be forced to pay up any losses the bank took from foreclosure (since mortgage debt is full recourse), and also pay taxes so that the government can give that to the banks as well.

At the same time, further dropping property values would be a great benefit to the wealthy, who would be able to scoop up real estate at below cost.

So the ideal scenario for the maximum amount of wealth confiscation in Spain would be:

  • Tax breaks for large companies buying real estate (already, if you have 25 million euros to spare, you can now buy real estate without paying the 10% ADJ tax)
  • Ensure people have jobs so that they can continue to pay off the debts for houses that have already been foreclosed on.
  • Sell off government assets at below market value. Government assets are generally owned for the benefit of the entire population, so selling them also serves to concentrate wealth.
  • Sell off bank owned assets with government guaranteed floor price. Heads I win, tails you lose.
  • Find further ways to increase normal peoples’ debts, while reducing their asset values (eg cut pensions, social security).

So eventually, say in 30 years, the world will be owned by a couple hundred trillionaires (who own all the worlds capital, which will probably consist mostly of robots) and the rest of us will be useless serfs, perhaps providing marginal value services to the rich.

1 comment:

trebots said...

In my lighter moments I tend to the view that Mas's Promised Land is just a way of panicking foreign residents into selling to his friends their property here. Then things will calm down, other foreigners will buy in, prices will rise, another panic will be manufactured, etc.