European banks and asset managers are looking to clean up and sell €584bn of risky real estate loans in an effort to clean up balance sheets.

Spain’s bad bank Sareb has seen sales of bad property loans increase 611% from a year earlier to €41bn

The US is one of the biggest buyers as sellers put together larger and larger loan packages, pushing out of the scope of smaller buyers. The average size of loan-sale transactions is now estimated at around €621m in H1 2014, up from €346m a year ago. The US group Lone Star Funds have been one of the biggest buyers this year spending around €15bn on real estate loans.

Full details from Bloomberg here.

Many in the market are promoting a bearish signal from the possibility flows into European bonds slowing or reversing. “Yields are too low now” they say. “There’s no value anymore” they say. “Cobblers” I say.

For one, there’s still value in yields with inflation so low. When that rises and starts eating into real returns then it’s time to start thinking of reversals.

For two, as we saw last week there’s still plenty of bank risk in the eurozone and that’s going to keep a premium in yields. If you’re a smart investor you would have looked right through the Espirito fear and grabbed yourself some better rates.

For three, there is still an absolute mountain of bad debt and property loans that are looking attractive now the threat of Europe collapsing has passed.

Banks need to shift the crud from their books ahead of the stress tests and government need to do the same with their bad banks.

Investors only need to know that the countries that they are investing in are solid and that’s what Europe is now. Forget the day to day data and the economic fundamentals, it is simply a case of “Is Europe going to collapse meaning my investments go up in smoke?”. If investors say “no” then that’s a bigger green light as you’re ever going to get because Europe is still cheap. The fact that sellers are able to sell larger packages of these loans is testament to the appetite of investors and that is going to lead to more jumping in.

Aside for investing in bonds there is so much more to buy into in Europe and that’s why the flows are unlikely to abate anytime soon.

Given the story above it also means that the clock is ticking on picking up that cheap Spanish villa you’ve been eyeing for a while

;-)