'Bubble' fears hit Spanish property

Article published on MSN news.  Original article here.

Spanish real estate companies took a hammering in the stock market Thursday as evidence mounted that Spain's 10-year property boom is over.

Shares fell in Fadesa, Inmocarral, Colonial, Metrovacesa and Urbis, after a year of feverish speculation that had seen real estate stocks rise by more than 1,000 per cent in some cases.

But Thursday, disappointing data on house prices and reported trouble with some companies triggered a big sell-off.
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House prices rose 7.2 per cent in the first quarter, the lowest increase in eight years, according to data published Thursday by the housing ministry. In many regions, house prices are falling.

The ministry said there was now oversupply, with licences issued for 800,000 new housing starts compared with an estimated demand for 600,000. Builders say there has been a rush to apply for construction licences ahead of stringent new environmental standards that come into force this year, and that this has added to the glut of unsold property.

The tepid news from the housing ministry came on top of reported trouble with some companies and controversy surrounding Sacyr Vallehermoso in France.

Astroc Mediterraneo, star of the real estate sector, went into free-fall on Wednesday after the company's audited accounts for 2006 revealed that part of its profits came from the sale of assets to a fund controlled by chairman Enrique Bola-ños. Astroc's shares fell 43 per cent in one day, wiping out €2.3bn ($3.1bn) of its market value.

The shares gained 6 per cent Thursday after the company denied that some of its biggest shareholders, including Amancio Ortega, chairman of the Spanish fashion group Inditex and Spain's wealthiest businessman, were jumping ship. Mr Ortega owns 5 per cent of Astroc through an investment trust.

Mr Bolaños became a paper billionaire after Astroc was listed in June last year. Astroc's shares rose more than 1,000 per cent and were worth €72.6 at their peak in February, when the company was valued at €9bn.

But according to Spanish trading houses, these kind of valuations for real estate companies are a thing of the past.

"The Spanish real estate sector is not a bubble, it is a huge balloon. When it blows up there will be an enormous bang," said one Madrid trader.

Traders said most investment funds had already exited the real estate sector, and that the free float for many of the listed companies was very small.

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Headlines like this are a big worry for anyone who has bought, is buying or is considering buying in Spain. Along with news of estate agents disappearing like rats off a sinking ship, it's enough to put off many potentail buyers.

I'm no expert in these matters, but my understanding of the article is that it refers to development companies, and the new properties they have bee (and continue) to build. Whilst there does seem to be a slow down I the market and a stabilising of prices, I think that there will always continue to be a strong demand for the right property in the right area.

I, and others, have said this on other threads. The off-plan bubble may have burst, but there are still plenty of worthwhile re-sale opportunities available, and if you stick to the traditional popular areas with well established infrastructure, you should have nothing to fear about investing your hard earned in Spain.

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It is all over the English and Welsh newspapers today! typical we have even lost out on this now by the slapdash spanish builders and the legal eagles who are obviously in their pockets, it has come to the point where we have had to ask Maria if she can look over the paperwork before we send any more finance out to Spain . It has been such a fiasco that poor old Colin's health is suffering , so much for a healthy laid back lifestyle.

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while the market has had a major recent correction and is softening, as you indicated, that is still coming off a strong base, ie the "reduction" to 500,000 homes still shows quite a strong demand  and secondly,  the overall population has been growing at about 2.1 % (2005) and the immigration is still coming, albeit perhaps at a slightly reduced rate.  

May 29 El Pais ran an article about a recent meeting of ASPRIMA (Assoc de Promotores Imobiliarios) for the upcoming Salon Imobiliario de Madrid.
Galindo  (president ASPRIMA) identified 3 growth areas : young first homers, low income and immigrants who have settled in Spain.

Some notes from the article:

De-accelaration in rate house prices are rising:
2007 down 3%
2008 stagnation
2009 less 1% negative

New homes "down" from 700,000 to 500,000 in 2008 (but still half a million new homes to built and supposedly sold which indicates a strong demand fo 5 to 7 years)

Spain's current 4 million immigrants represent 4% of total workforce. Influx is dropping but nevertheless could contribute some 100,000 new homes on top of the 500,000. Fewer immigrants means lower unemployment rate

Mortages getting longer in attempt to manage 'soft' market correction and aim at 3 market segments mentioned above,
You can now get a 40 yr mortgage with some banks or Immobiliarios such as Metrovacesa, promising to drop 2 points below Euribor in Year 1
Nevertheless a mortgage of 150,000 will cost over 800/month

I accept that the news has been alarming for Brits holiday homes where ther is a glut but no one can really pretend to be that surprised. We  have been eating dust for the last 2 years all over the Costas... Nevertheless I still think a medium-term view of specific types of development offer good opprtunities.

Ojala!!!

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