Spanish Developers, Their Debts, and How Not to Solve a Problem

Published on 28/03/2010 in Investing in Spanish Property

Recent press reports reveal that Spain's 8 biggest, listed developers have seen their balance sheets shrink by 40% over the course of the Spanish property market crash, thanks to tumbling asset values and disinvestments to pay down debts. It's always worth keeping an eye on the listed developers: They have to declare their results, which shed some light on what's happening in the market. Between them and their bank creditors, they are also giving us a good example of how not to solve a problem.

Construction on Costa del solRight now, the only game in town for Spanish developers is managing debt levels. In total, Spain's developers have a combined debt of 323 billion euros, or about 30% of Spanish GDP, according to the Bank of Spain. Around 9% of that, some 29 billion Euros, is owed by the biggest 8 listed developers, including companies like Martinsa-Fadesa that are already in court administration, unable to meet their debt payments. All these developers are essentially now in the business of flogging assets and renegotiating debts, not building homes. Makes you wonder if they should still be referred to as developers, if they don't actually develop anything.

Unfortunately, negotiations between the banks and developers seem to have focused more on kicking the can down the road then solving the real problem - the over-valuation of asset prices. The pattern is familiar: They reach an agreement for debt repayments but months later it unravels and they have to start over. One has to assume that even they know they are wasting time. It's obvious to everyone else.

And the longer they put off effective solutions, the longer the Spanish economy will suffer. Billions of euros are tied up in unproductive loans instead of financing productive business and creating jobs. Officially the bad-debt ratio of developers is 10% (32.5 billion euros), but I suspect it is much, much higher than that.

At some point banks and developers alike are going to have to grab the bull by the horns and deal with their over-valued property portfolios. When that happens you will see widespread price declines for certain types of Spanish property. That means there will be some great opportunities for investors in a position to exploit the market. When will this happen? As always, difficult to say, but it's only a question of when, not if. In my opinion, the sale will begin in the second half of the year or early next year. But first of all, the key players have to learn how to solve a problem.

Written by: Mark Stucklin

About the author:

Mark Stucklin writes the Spanish Property Doctor column in The Sunday Times, and runs Spanish Property Insight, a property information website. Mark is also the author of 'Need to know. Buying Property in Spain' published by Harper Collins, and his daily blog on the Spanish real estate market is the leading source of news and opinion in English on the Spanish property sector.




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Comments:

alan j said:
06 April 2010 @ 12:15

there are investors who firmly believe that the spanish holiday home market still has along way to fall,at a recent london property auction organised by( a place in the sun)there were only 20 punters in attendance the only deals offered resulted in bids of just 35% of peak values,i.e falls of 65%.
maybe this is why banks+developers are reluctant to come out of the woodwork,food for thought perhaps.???????ouch.



alan j said:
06 April 2010 @ 12:11

there are investors who firmly believe that the spanish holiday home market still has along way to fall,at a recent london property auction organised by( a place in the sun)there were only 20 punters in attendance the only deals offered resulted in bids of just 35% of peak values,i.e falls of 65%.
maybe this is why banks+developers are reluctant to come out of the woodwork,food for thought perhaps.???????ouch.



Edward said:
04 April 2010 @ 23:05

Hi Mark,
You make sence in your comments, but i am sure i read somewhere on your Web( maybe 2 monthd ago ) that you predicted NOW was a good time to buy Spanish property ???
You stated how you got caught as you thought that the Market had topped but infact kept riseing ,
Your statement then was that although it looks very bleak now is the time to dip your toe so to speak
I stand to be corrected, but havr you now changed your tune
Many thanks



miguel said:
31 March 2010 @ 12:44

Could you please let us know who the 8 are.


robert said:
31 March 2010 @ 01:02

the problem is that in Spain the law has not been sorted out yet
untill you are guarateed when you go through all the proper legal procedures and buy a property
The authorities cannot say that your property is illegal and can be pulled down or you have to pay 1000 of Euros more for infrastructure development or you have to give half your land back
at the moment only buy if you can afford to loose that money



SarahR said:
30 March 2010 @ 21:02

Interesting and worrying article, though not a complete surprise unfortunately.
Who are the 8 biggest listed developers in Spain?
Cheers.


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