[A-List] Spain: property bubble bursts

[Michael Keaney]

Spain's real estate groups hit by fears of 'bubble'
By Leslie Crawford in Madrid
Financial Times: April 20 2007

Spanish real estate companies took a hammering in the stock market
yesterday 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 yesterday, disappointing data on house prices and reported trouble
with some companies triggered a big sell-off.

House prices rose 7.2 per cent in the first quarter, the lowest increase
in eight years, according to data published yesterday by the housing
ministry. In many regions, house prices are falling.

The ministry said there was now oversupply, with licenses 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 the misadventures of 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 Bolaños. 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 yesterday 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. "Analysts have become
nervous about the debt load of some companies, including Sacyr, and the
quality of assets that are underpinning them."

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.

*****

Spanish property boom ends in panic
By Leslie Crawford in Madrid
Financial Times: April 25 2007

Spain's overpriced property market came crashing down yesterday, with
panic selling of real estate stocks signalling the end of a 10-year-old
construction boom.

The sell-off dragged down related industries such as construction and
banking and caused a 2.7 per cent drop in the Ibex 35 index of leading
shares.

The fall also rippled through other European markets as investors
worried about its knock-on effects.

Investors got the jitters after Astroc, a Valencian real estate
developer, went into free-fall last week when its audited accounts
revealed some of last year's profits came from the sale of Astroc assets
to its chairman, Enrique Bañuelos. Mr Bañuelos told a press conference
yesterday he was considering changing auditors. Astroc's shares have
fallen by 70 per cent in a week.

The heavy debt load of some real estate groups and worries about
oversupply - with 800,000 new housing starts approved for this year,
compared with an estimated demand for 600,000 - also contributed to the
sell-off.

Meanwhile, the enthusiasm of UK investors for holiday homes in Spain has
cooled as they have started turning their attention to other countries.

The sector has also lost its shine because of corruption scandals linked
to property deals. In Marbella, many municipal councillors are in jail
awaiting trial for allegedly taking kickbacks on real estate deals.

The Spanish government has promised tighter regulation and a crackdown
against corruption.

Astroc had been the darling of the stock market, rising by 1,000 per
cent after its listing last May. The top five real estate groups -
Colonial, Metrovacesa, Fadesa, Urbis and Inmocarral - rose by 132 per
cent last year.

"The real estate bubble has not burst. It is the inflated valuations of
some real estate companies that have been pricked," says Natalia
Aguirre, head analyst at Renta 4, a Spanish broker.

María Trujillo, Spain's housing minister, yesterday said the real estate
market was heading for a soft landing, rather than a crash.

In many parts of Spain, house prices are falling after their lowest
first-quarter increase in eight years.

****

Property troubles put the squeeze on equities
By Tony Tassell and Michael Mackenzie
Financial Times: April 25 2007

Concerns about housing markets on both sides of the Atlantic weighed on
global equity markets yesterday while boosting government bonds.

News that existing homes sales in the US suffered their steepest monthly
fall in18 years in March accentuated worries over the extent of the
country's housing downturn.

It helped drive the dollar down to close at a fresh two-year low against
the euro, sliding 0.4 per cent to $1.3630 against the shared currency by
midday in New York.

Existing home sales in the US fell by 8.4 per cent to 6.12m in March,
below the 6.4m expected.

The inventory of unsold homes rose to 7.3 months' worth of supply, up
from 6.8 months' worth in February.

However, economists said the data was affected by cold weather in
February.

"If people can't go out in February to look for homes you don't have the
closings in March,'' said David Lereah, chief economist of the US
National Association of Realtors.

Other economists said sales had been hit by high-profile coverage of the
problems of the US subprime mortgage market.

Dimitry Fleming, economist at ING, said the biggest risk to sales was
price declines intensifying, keeping more and more potential buyers on
the sidelines.

"But for now the direction of the price data is not too bad. In March,
the median existing home price fell just 0.3 per cent year-on-year
versus minus 1.9 per cent in the year to February," he said.

Markets also had to contend with downbeat data on US consumer
confidence. The Conference Board's index of consumer confidence fell to
104.0 in April from 108.2 in March, below the 105.0 expected.

On Wall Street by mid-afternoon the S&P 500 index was 0.1 per cent ahead
at 1,482.37 while the Dow Jones Industrial Average was up 0.5 per cent
at 12,978.72.

On government bond markets, US Treasury prices rallied after the data
and the yield on the 10-year bond fell to 4.61 per cent from 4.64 per
cent.

The yield on the two-year note fell 4.3 basis points to 4.588 per cent.

The decline in yields yesterday pushed benchmarks to their lowest levels
since the release of a stronger than expected March employment report
earlier this month.

The US data also helped European government bonds rally, with the
10-year benchmark bund yield falling 2.2bp to 4.162 per cent.

"The housing numbers were expected to improve in the Spring and the
March report has disappointed those hopes," said Rick Klingman, head of
rates trading at ABN Amro.

As yields fell, expectations for US rate cuts edged firmer. Mr Klingman
said the odds of a cut by September were still less than 50 per cent. A
quarter percentage point cut is priced in for 2007.

Across the Atlantic, worries that the Spanish property market boom is
about to burst after a decade of sharp gains cast a shadow over European
stock markets as sector stocks were hit by heavy falls in Madrid.

The property woes dragged down the Spanish equity benchmark Ibex35 index
by 2.7 per cent. Amid worries about the knock-on effects for other
markets if the Spanish property boom unravelled, the FTSE Eurofirst 300
index fell 0.88 per cent to 1,564.08.

The catalyst for the Spanish sell-off appeared to be a 60 per cent share
price slump for developer Astroc over the past week. But sector concerns
had been building for some time, particularly as house price inflation
slowed. Data last week showed prices rose in the year to March by 7.8
per cent, the smallest increase since 1998.

Some analysts also argue the broader Spanish corporate sector is
overleveraged and overvalued.

Ian McCallum, chief investment officer at Bedlam Asset Management, said
that at 143 per cent, the gearing of Spain's listed companies was
"unrivalled".

Charles Dumas, at Lombard Street Research, said: "The country is
overhoused, households are overindebted and the construction industry
continues to churn out homes. Minimal productivity growth and rapid wage
gains have hampered Spanish industry."

****

Spanish settlers fearful of shaky foundations
By Leslie Crawford
Financial Times: April 26 2007

Britons who own properties in Spain were assured yesterday that house
prices were not about to collapse, in spite of the heavy selling of
real-estate stocks on the Madrid bourse this week.

Pedro Solbes, Spain's finance minister, said that after doubling in
value last year, real-estate companies were experiencing a "stock market
correction".

He said the government still believed that house prices were heading for
a soft landing rather than a crash.

House prices have doubled since 2000, and economists have warned that
the market is overvalued by as much as 30 per cent. In the first quarter
of this year, house prices rose by 7 per cent, their lowest rise in
eight years.

Young Spaniards have borrowed heavily to buy their first homes, and the
fear is that a big fall in property values would provoke a recession.
More than 18 per cent of the economy is tied to construction, according
to government figures.

In many parts of Spain, house prices are already falling. Overbuilding,
over-pricing and corruption scandals have frightened off buyers,
including Britons and other north Europeans who have driven the demand
for property on Spain's Mediterranean coast.

"The house price boom ended three years ago," says Chris McCarthy, owner
of Viva Estates, an estate agent on the Marbella coast.

Britons hoping to turn a quick profit on foreign property deals have
moved to Bulgaria and other emerging markets, Mr McCarthy says. "There
are no bargains in Spain," he adds.

But that in itself is a good thing. "The speculators are gone, and
Britons who are buying now are more realistic. They absolutely want to
be here," Mr McCarthy says.

Some 750,000 Britonsown property in Spain, according to British embassy
estimates. Other northEuropeans, mainly Germans, are also big property
owners on the Mediterranean coast and the Balearic Islands. According to
the Instituteof Public Policy Researchin some 200,000 Britons leave the
UK each year tostart new lives abroad, and Spain is the second most
popular destination after Australia.

These new settlers on the Spanish coast face bigger threats than the
fall in the value of the property.

In Marbella, where many town councillors are injail awaiting trial
fortaking kickbacks on land and property deals, prosecutors have
identified some 30,000 homes that were built and sold illegally, without
proper licences.

The present owners, including thousands of foreigners, are in a legal
limbo. They cannot sell their homes, which could be demolished on a
judge's order.

Marbella residents hope a new council, to be elected next month, will
solve the problem in the courts.

"But at present, buyersare wary," says José María de Lorenzo, head of
Irwin Mitchell's law practicein Marbella. "People have been scared by
the corruption scandals. There have been too many cases of real-estate
developers trying to shift property without proper building permits,
promising buyers that the permits are on their way," he says. "I know
ofsome real-estate agents that have not had a sale in 18 months."

Mr de Lorenzo is representing hundreds of British families trapped in
another property scam in Almería further up the Mediterranean coast. In
the town of Albox, and in the valley of Almanzora, some 6,000 Europeans
are fighting to save properties that were bought but turned out not to
have the required building licences. The local council has refused to
hook up the new houses with water and electricity, while a court has
ordered the demolition of 11 houses built along a water course.

Mr de Lorenzo says residents hope that municipal elections next month
will bring in a new generation of politicians determined to fight
corruption in councils. "I think there is a feeling that abuses have
gone too far," he says.

"There is also hope that things are on the mend. Politicians are
promising tighter controls on urban development and a clamp-down on
municipal corruption. Perhaps the property market will pick up after
that," he says.


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