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Spanish real estate bust leads to ghost towns

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Paul White/AP

(Read caption) A lone joggers runs past apartment blocks in Sesena in the Toledo Provence near Madrid, Spain. Only a 45-minute drive from downtown Madrid, towering vacant apartment blocks loom over empty streets and weed-filled lots. Apartments galore are for sale and rent, and prices are plunging.

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The real estate bust in Spain has produced a variety of apartment communities and similar properties that have turned into ghost towns as real estate demand has evaporated. See the link for photos. In a town called Sesena:

More than 13,000 apartments were supposed to go up to create a mini-city for 30,000 people just 45 minutes outside of Madrid. But only 5,100 were built, many are uninhabited and regular Spaniards who bought them as investments are now competing to offload them for huge losses.

In Sesena and other ghost developments around Spain, some banks are already trying to unload finished apartments at discounts of up to 50 percent of their original prices.

Any discussion of misallocation of resources on a massive scale would be incomplete without a remembrance of Muang Thong Thani, the small city of condo towers built near Bangkok in Thailand right before the Asian debt crisis of 1997. The towers were built to house approximately 150,000 people, although it’s unclear if those building have filled up, even fourteen years later. It’s difficult to tell if the web site has been updated since 2007, but it presently states that “The vast majority of these condos, shops, and office buildings have never been occupied since their completion in 1995-97.”

The Commanding Heights documentary (see below) has an interesting section on Muang Thong Thani and on how loose monetary policy in Europe and the US helped to ruin the Thai economy. (Although the video doesn’t quite put it that way.) It offers some insight into the psychology of real estate booms and how middle class investors are encouraged to invest in doomed real estate by easy money policies.

Also, Mark Thornton noticed last week that the world’s tallest building is now a distressed property.

Meanwhile, here in the U.S., foreclosure activity may be ramping up following the conclusion (for the most part) of negotiations with loan servicers and the feds and state attorneys general over a massive legal settlement. The conclusion of negotiations signals that the processing of foreclosures, which has slowed significantly during the past year as banks dealt with the controversy, may now be speeding up. Considering that, according to the Mortgage Bankers Association, more than 14 percent of all first-lien mortgage loans in Florida are now sitting in foreclosure (to name the worst one), it looks like they will have plenty of loans to deal with. The Houston Chronicle reports, however, that the taxpayers may be footing much of the bill for the financial hit the banks will be taking.

Also this week: Housing starts up. Well, they’re up compared to banner years 2009 and 2010.


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