Thursday, 26 April 2007

Spanish property market tumbles

Over the last ten years, many Brits tried to cash in on the UK housing bubble and with their ill-deserved gains, tried to trade up with a new home in Spain. The market over there gave a lot of encouragement to this dubious business. The market over there was booming almost as much as the market back here in Blighty.

However, this week, the Spanish market has just burst. Real estate stocks have crashed, indicating the days of easy money and high property prices are over. Real estate prices are widely anticipated to tumble.

Time to sell the time-share......

April 24 (Bloomberg) -- Spanish real-estate and bank stocks tumbled on concern the country's property boom is imploding. Inmobiliaria Colonial SA's shares dropped 13 percent and Grupo Inmocaral SA's stock fell 11 percent, leading the slump by developers of homes and offices. Banco Bilbao Vizcaya Argentaria SA, the country's second-biggest bank, declined 2.8 percent on speculation bad loans will rise.

``This is the burst of the Spanish real-estate bubble,'' said Alberto Espelosin, a strategist at Zaragoza, Spain-based Ibercaja Gestion, which manages about $7 billion. ``Banks are exposed and have risk.''

Spanish house prices are rising at the slowest rate since 1998, a government report showed last week, following an eight- year rally fueled by foreign buyers of vacation houses and an influx of immigrants. Higher borrowing costs will probably restrict this year's increase in prices to between 3 percent and 5 percent, according to Banco Bilbao Vizcaya Argentaria SA. That's down from about 15 percent at the peak of the market.

Spanish companies have been the top performers in the Bloomberg Europe Real Estate Index in the past four years. Inmocaral's shares jumped more than 14 times in value during the period, while Metrovacesa SA climbed more than fivefold and Inmobiliaria Colonial almost quadrupled.

Biggest Loser

Astroc Mediterraneo SA was one of four Spanish real estate companies that took advantage of the surge in property values by selling shares to the public last year. Astroc's shares in February touched a record 75 euros, more than 10 times its initial public offering price of 6.40 euros. The stock dropped 9 percent to 15.95 euros today, bringing the decline for the past five trading days to 65 percent.

There is no ``determining reason'' behind the slump, Chairman Enrique Banuelos said today at a briefing in Madrid. The Valencia-based company is ``solid and solvent,'' according to Banuelos, one of Astroc's biggest shareholders.

Some property-related companies have tried to become less dependent on the industry. Actividades de Construccion & Servicios SA and Grupo Ferrovial SA, Spain's biggest construction companies, invested in other industries including energy and airport management and disposed of property holdings in 2006.

`Warning Sign'

"This is a warning sign for the real-estate market in general and for banks that are exposed to the sector, for the risks of increased provisions,'' said Emanuele Vizzini, who oversees about $1.2 billion at Investitori Sgr in Milan.

Between 1998 and the end of 2006, the amount that Spanish banks lent for real-estate activity rose tenfold to 107 billion euros, according to the bank of Spain.

Higher interest rates ``will help the process of an orderly adjustment in the real estate market,'' said Miguel Fernandez Ordonez, Governor of the Bank of Spain, in testimony to the Spanish parliament today.

The property boom propelled Spaniards including Astroc Chairman Enrique Banuelos and Inmocaral Chairman Luis Portillo onto Forbes magazine's annual billionaire's list. Of the 20 Spaniards included in the 946 billionaires listed by Forbes, 12 made their fortunes through construction or real estate.

The average cost of a Spanish house was 2,736 euros per square meter at the end of last year, according to Sociedad de Tasacion, an adviser on Spanish real estate assets. That was up from 1,036 euros nine years earlier.

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