The European Commission (EC) has concluded that the Andalusia plan to temporarily expropriate homes from banks to prevent evictions of low-income families could negatively impact bank stability and economic recovery.
In April, the region’s coalition government of Socialists and the United Left (communists and green groups) passed a decree establishing that homes in the process of foreclosure can be taken away from banks for up to three years, if the homeowners meet certain conditions. The goal is to prevent more low-income families from falling into social exclusion in a country with climbing eviction rates. So far, there have been seven such expropriations.
But the European executive is defending the Spanish banking sector. In a letter to the Economy Ministry, to which the news agency Efe has had access, the EC warns that this sort of initiative could increase doubts over the real estate market, push up Spain’s borrowing costs and reduce investor interest in the property market.
Specifically, the EC wrote that there could be “a drop in the value of real estate assets,” resulting in an immediate impact on lenders’ balance sheets and greater provisioning needs for the latter. This would in turn prevent credit from flowing to businesses and individuals.