Despite the creation of the bad bank, it seems that toxic assets are still blighting the Spanish property sector. Recent data from the Bank of Spain revealed that bad loans reached 11.4 per cent of debts in November – a record high for the country. Although month-on-month increases have slowed down, this is a continuation of bad loan rises that have become entrenched in the industry since June 2011, totalling €192 billion (£161 billion approximately).
This comes as the country hovers on the brink of the second tranche of its financial rescue package, with an International Monetary Fund delegation on its way to oversee the sector’s restructuring. It was hoped that on January 20th, €1.9 billion would be given to the country to help it clear bad loans and toxic real estate. This is a vital part of the property market recovery and will – theoretically – enable the country to move forward.
However, not everyone is confident that the monetary injection will solve the country’s problems. Javier Diaz-Gimenez, of the IESE business school, told the Irish Times: “Until Spain starts creating employment it’s hard to see how it will start reducing that number [of bad loans].” He is not the first to recognise the barrier unemployment poses to the Spanish property market. Prime Minister Mariano Rajoy told the Financial Times that the number of citizens out of work is the biggest challenge facing the country.
Throughout 2012, a further 426,364 people became unemployed. However, the end of the year brought with it some good news, with the number of people registered as out of work falling by 1.2 per cent in December to 4.85 million. This marks the first decline since July 2012 and was the best performance in December since records began in 1996. According to the country’s labour ministry, it is women and first-time workers who are driving the decline in unemployment. Nevertheless, these figures should be approached with caution and celebrations put on halt for the moment, as only the next couple of months can reveal whether the tides have turned for the country.