Letter From the UK (about Spain)

A Cautionary Tale

Debt Fuelled Boom Ends in Spectacular Bust

The abridged article below illustrates why some large Spanish banks are under such stress.

Spanish property: Polaris golf resort homes crash to a third of original price

The Guardian

They were once Europe's most ambitious holiday homes projects, vast developments financed by supersized loans from Spain's cajas and banks. The properties were widely advertised on television in the UK to entice investors chasing the good life in the sun and hoping to profit from the property boom.

But five years on, the Polaris World holiday dream of sun-drenched apartments overlooking golf courses designed by Jack Nicklaus has turned sour. Apartments that once sold for €200,000 (£160,000) are struggling to fetch €60,000. The last resorts built are now ghost villages.

Welcome to Murcia, the very heart of Spain's property boom and bust, where repossessions are sweeping the region and where losses are straining balance sheets of almost every Spanish bank.
  The drive along the dual carriageway from Murcia airport into desert-like scrub of the hinterland is a journey through the hubris of the credit-fuelled building boom, back to a time when more cement was mixed in Spain than in every other European country combined. Either side of the road lie unfinished and repossessed, golf resort developments.

Good roads complete with zebra crossings built to link homes that have never been constructed, simply stop in the middle of nowhere. Conference centres lie unused on the edge of vacant developments. Stores, restaurants and sports facilities have failed to materialise as the developers have run out of cash. Those who bought "luxury' villas for €1m in the good times would be lucky to get a third for them now – if, that is, they could ever find a buyer happy to tolerate living on an unfinished complex.

At the heart of the boom was Polaris World, which built seven resorts on the Costa Calida, and inspired a number of copycat developments in what was once one of the poorest regions of Spain. The group, backed by cheap euro loans bought acres of agricultural land to build self-contained, gated holiday resorts each constructed around a golf course.

Promoted with a memorable TV campaign fronted by Jack Nicklaus and a very slick sales operation, Polaris convinced thousands of buyers – many from the UK – to pay top prices for property in the desert.
Many put down large deposits on more than one property hoping to cash in on rising values. At the peak of the market some made a profit, but as the financial crisis began to unfold in 2008, prices began to fall. The company kept building despite the slump in the prices of its existing developments. By 2010, Polaris World was forced to relinquish most of its assets – the golf courses and unsold properties – to a consortium of banks led by CAM Bank (Caja de Ahorros del Mediterraneo), the leading lender behind the Murcia building spree.

In December last year, CAM was sold to Banco Sabadell for just €1 – after Spain's deposit guarantee fund injected €5.25bn into the stricken lender. . . .

At the massive La Torre resort this week, the golf courses were looking well-tended, – but no one was on them. The bars and restaurants except one, were closed, communal pools lie unused and a five star Intercontinental Hotel is bereft of visitors. For sale signs abound. . . .

The newest of the Polaris World resorts, El Valle, is perhaps the most surreal. The development, the furthest from the coast, comprises several hundred homes, but on the day of our visit, there were just four people on site – three of whom were staff. Everything is complete, and in good condition. And almost totally devoid of life.

At the Mosa Trajectum resort next door, one almost expects to see tumbleweed blowing down the main street. Here the golf course looked dry and less well-tended. The houses that had been started looked finished, but immaculate roads just stop as if someone had decided mid-project that enough was enough. The sales office, typically a vital feature of such developments was long abandoned..I called in At Polaris World's glass-clad HQ for an explanation of what had gone wrong, when I revealed I was reporting for The Guardian. The spokeswoman said: "There's nothing I can tell you. I don't know anything." the spokeswoman said.