Spanish shares plunge on property fears

The_Conductor

http://www.rte.ie/business/2007/0424/spain.html

Worries about the health of the Spanish property market have hit shares across Europe this afternoon.

Stocks in Dublin were down almost 2% knocking almost €1.5 billion from the value of shares here.

Banking shares closed lower because of fears for the billions of euro Irish investors have tied up in Spanish properties.

Spain has had building bonanza since the mid 1990's and many property companies on the Madrid stock exchange have seen their value double over the past year.

However, there are concerns the Spanish housing sector is cooling off and in some areas the value of property is falling.

In Madrid, the unease over the housing sector was triggered by the collapse of shares in Spanish property company Astroc, which have lost more than 60% in less than a week, after an auditor's report raised concerns over its finances.

European stock markets were also concerned on comments on the Spanish property market by the president of French construction firm Eiffage, Jean-Francois Roverato.

Roverato justified rejecting a takeover offer from Spanish construction group Sacyr on the grounds that the Spanish firm's real estate assets in its home market 'could very soon be revised down.'

In Madrid the Ibex 35, which has struck record highs in recent weeks, closed down 2.7% this evening.

talkingclock

no foreigner should be allowed to ruin foreign housing markets for the locals!

The_Conductor

talkingclock wrote:

no foreigner should be allowed to ruin foreign housing markets for the locals!

Well, the Irish buyers in Spain are not insignificant in number (as our embassy in Madrid reported during the week). So we are partly to blame there. Ditto the situation in Portugal, Cyprus, Turkey, Bulgaria and any number of other more exotic destinations.

As for our own housing market- its primary cause of ruination was also attributal to foreign causes, namely the ECB and its rock bottom interest rates...... (mind you the inept bungling and misguided interventionist tactics of the government were of course also to blame).

Bloomberg is predicting further fallout of the Spanish stockmarket collapse this morning......

Interesting Times........

seamus

The Spanish market has been fubar for a little longer than our own. For the past 3/4 years, driving down the Costa Del Sol, you'd see a big landscape full of cranes, and also plenty of half-built, now deserted apartment blocks.

The market was kept afloat by investor stubbornness and the seasonal rents - unlike here, people didn't try to bail out as soon as they realised they couldn't get long-term renters. They sat on their properties, refused to drop their prices, and were happy to get in the holidays renter for 6-12 weeks of the year. There was also a steady enough influx of wealthy Irish investors, eager to get a nice place in the sun, near a golf course and with its own private swimming pool.
With our own interest rates gone up, I would say that foreign invesment in Spainish property has mostly dried up, and now there are far too many properties in the market.

I reckon it's going to be quite different to ours - the nightmare scenario of sudden and massive crash. We may be able to learn a few things from it though.

whizzbang

Does anyone think this could this lead to the ECB scaling back the rate rises? Spain is a big country, if it gets property wobbles then the ECB might notice (Unlike here).

The_Conductor

whizzbang wrote:

Does anyone think this could this lead to the ECB scaling back the rate rises? Spain is a big country, if it gets property wobbles then the ECB might notice (Unlike here).

Very doubtful- the main criterion they look at is the rate of inflation. They have a target to keep key headline inflation in the Eurozone below 2%. If they Spanish property wobbles lowered this rate as a side-effect (and it would be a dilute side effect, as the higher rates elsewhere may offset the Spanish drop)- then its possible, but not probable that it may influence the interest rates.

Another way of looking at it- Ireland, Portugal, Spain, The Netherlands and Denmark have all had run-away property markets as a result of the low Euro interest rates. It didn't matter to the ECB then, so why should it now?

whizzbang

smccarrick wrote:

Very doubtful- the main criterion they look at is the rate of inflation. They have a target to keep key headline inflation in the Eurozone below 2%. If they Spanish property wobbles lowered this rate as a side-effect (and it would be a dilute side effect, as the higher rates elsewhere may offset the Spanish drop)- then its possible, but not probable that it may influence the interest rates.

Another way of looking at it- Ireland, Portugal, Spain, The Netherlands and Denmark have all had run-away property markets as a result of the low Euro interest rates. It didn't matter to the ECB then, so why should it now?

True, it will be itneresting to see how any property price drops will effect Euro inflation. I wonder if house prices stop rising and peopel are stuck with high mortgages, will that just leave less money for other purchases and help reduce inflation without lowering interest rates?ie less money in the system.

Seeing as the ECB would have direct control over people's biggest expense (Mortgage payments) this may give them more direct control on inflation! (that is if they are not using fixed interest mortgages)

Zambia

I wonder if anyone switched investing in Irish property to Spainish

ircoha

An extract from the original piece, the emphasis is mine:

2 issues, a sniff of crooked accounting in a spanish property company coupled with a perfect riposte from a target of a take-over bid combined to give some journalist a big HO. [Its like when O'leary said he would offer flights FROM the US for 10 bucks. Most commentators ignored the from]

The correction is in the overpriced real estate companies, not in the actual asset base, where there is no evidence of any 'correction' The market peaked in 2003, around August and has been pretty flat then. I know, I bought then and am showing no gain since due to the hugh volume of stuff coming on since. In fact it went down and when I tried to sell it at a loss to purchase price, the Spanish Tax people set a value of original cost plus annual inflation as the value for tax purposes: they only do that to us foreigners.


In Madrid, the unease over the housing sector was triggered by the collapse of shares in Spanish property company Astroc, which have lost more than 60% in less than a week, after an auditor's report raised concerns over its finances.

European stock markets were also concerned on comments on the Spanish property market by the president of French construction firm Eiffage, Jean-Francois Roverato.

Roverato justified rejecting a takeover offer from Spanish construction group Sacyr on the grounds that the Spanish firm's real estate assets in its home market 'could very soon be revised down.'

In Madrid the Ibex 35, which has struck record highs in recent weeks, closed down 2.7% this evening.

is_that_so

The Bank of Spain governor Miguel Ángel Fernández Ordóñez reckons there's a gradual deceleration of property prices and that what is currently happening is a just a readjustment on the Spanish stock market -given that some property companies are already overpriced. From an Irish point of view there may also be exposure to the corruption problem in some councils, especially around Marbella. [URL="javascript:showPlayer('/news/2007/0425/morningireland_av.html?2241727,242,209')"]Morning Ireland[/URL] ran an interesting piece on it this morning. I was looking at the opportunity in 1998 to buy in and even then I was happy to say no. IMO there are many things about the Spanish market that can trip people up, and that put me off . It is very much a case of caveat emptor.

Zambia

is_that_so wrote:

The Bank of Spain governor Miguel Ángel Fernández Ordóñez reckons there's a gradual deceleration of property prices and that what is currently happening is a just a readjustment on the Spanish stock market -given that some property companies are already overpriced. From an Irish point of view there may also be exposure to the corruption problem in some councils, especially around Marbella. [URL="javascript:showPlayer('/news/2007/0425/morningireland_av.html?2241727,242,209')"]Morning Ireland[/URL] ran an interesting piece on it this morning. I was looking at the opportunity in 1998 to buy in and even then I was happy to say no. IMO there are many things about the Spanish market that can trip people up, and that put me off . It is very much a case of caveat emptor.

That land Grab law being one of them.

I remember a friend of mine trying to buy a Spainish place this year , and was told he had to put a non refundable deposit on a property that had a 95% chance of being given planning permisson.

caveat emptor - Buyer beware

Victor

talkingclock wrote:

no foreigner should be allowed to ruin foreign housing markets for the locals!

Very subtle.

The_Conductor

From the BBC this time:

http://news.bbc.co.uk/2/hi/business/6592203.stm

Fears of a Spanish property crash have increased, prompting a sell-off in real estate shares and fanning concerns that thousands of Britons will lose money.

The sell-off was triggered by worries of rising bad debts and speculation that one large company had been buying its own properties to keep prices high.

Spain is one of the main destinations for Britons looking to move abroad or buy a holiday home as an investment.

Analysts warned that a crash could spread to the wider Spanish economy

Spain's economy has been growing strongly in recent years - the government recently raised its forecast for this year to 3.5% - driven mainly by expansion in the construction industry.

Coupled to this has been strong demand for housing helped by the low interest rates that have also underpinned consumer spending and allowed households to take on increasingly large amounts of debt.

However, in recent months cracks have started to appear and mortgage demand has slowed as homeownership levels topped 85%.


The country is over-housed, households are over-indebted and the construction industry continues to churn out houses
Lombard Street Research

On top of that, households now have some of the highest debt levels in the eurozone, much of which is based on variable lending rates leaving consumers open to sudden increases in borrowing costs.

The worry is that should the suspected property bubble burst, and some analysts estimate that house prices are overvalued by 30%, then many other industries such as banking and retail would also suffer.

No worries?

Spain's government and construction industry figures tried to calm fears on Wednesday, stating that the fundamentals of the property market remained solid.

Economy Minister Pedro Solbes said that the country was not in a "worrying situation".

He argued that the outlook for household earnings, and as a result their debt repayments, was steady because there "are good prospects for employment".

The chairman of Astroc, the Spanish property firm at the heart of the recent market wobbles, has also said that the fears are unfounded.

There had been reports that Enrique Banuelos, the chairman and majority shareholder of Astroc, had bought properties from the company and rumours that a large shareholder had sold out.

However, Mr Banuelos said that there was no "determining reason" for the sell off that has wiped more than 60% off the value of the company in the past six days.

Analysts warned that while the current fears of a crash may be over amplified, the Spanish property boom that had provided strong returns for the past eight years was probably over.

"The country is over-housed, households are over-indebted and the construction industry continues to churn out houses," said Lombard Street analysts in a note to clients.

According to Lombard Street, the biggest problem facing the market was over-supply of housing. Industry estimates show that more than 800,000 new homes were built in Spain last year, four times the number in the UK.

"That is not good news for UK investors in Spain," said Diana Choyleva of Lombard Street.

"We have had over-investment on a gigantic scale and it has already started a slowdown in house price growth," she explained.

"We will definitely see house price growth stop and falls in nominal prices are likely in Spain over the next 12 to 18 months."

Pa ElGrande

talkingclock wrote:

no foreigner should be allowed to ruin foreign housing markets for the locals!

Does this also include Dubs buying in Cork?

Once the equity dries up here and in Britain, the Bulgarian market collapses as well, there is no resale market (except Sofia), the demand is all for new build. I would not surprised if so called the 'rental market' there was being driven by property investors looking for places to buy. Lots of people going to get burned here.

OVER 29% OF BULGARIA’S PROPERTY DEALS INVOLVE FOREIGN INVESTORS

Irish investors concluded nearly 13 per cent of the property deals in 2006. Americans were involved in six per cent of the deals, Germans in four and Italians in three per cent.

Data showed that 39.93 per cent of investors were interested in winter resort property, followed by sea resorts with 31.13 per cent.
The capital of Sofia attracted 8.11 per cent of property buyers, Pankev said.

Buyers hold fire in shock overseas property 'slowdown'

There has been a dramatic "slowdown" of Irish investment in overseas residential property this year, according to major industry players. For the first time this century, buying has slowed to a trickle in some of the more speculative markets including new eastern Europe schemes, ski resorts in Bulgaria, leaseback deals in France and traditional Spanish sun resorts.

Investing in Bulgaria? Buyer beware!

As a result, the Bulgarian Ministry of the Environment and Waters ordered construction work on the project to stop in February 2006, when it was still at a very early stage. The developer ignored the ministry’s rule and continued construction while appealing the order in court. In November 2006, the Bulgarian Supreme Administrative Court finally ruled that the ministry’s order is legal and must be followed.

It is quite possible that the complex may be demolished by the authorities, while the Bulgarian company would be obliged to return the terrain to its pre-construction state. The foreign investors who have purchased flats in the complex – 67 British nationals, 22 Irish, two Belgians and one Indian – will presumably lose their investment.

The_Conductor

http://news.bbc.co.uk/2/hi/business/6598949.stm

For people looking to find a place in the Spanish sun, the past few days have been far from glorious.

Fears of a crash in the Spanish housing market, prompted by a sell-off in property shares, have made life uncomfortable for thousands of Brits who own homes or are looking to take the plunge and buy abroad.

But these worries have not deterred one would-be buyer.

"There are a lot of negatives around and I have no doubt that property values will go down in the short term," says Richard Leigh, from Wiltshire, who is buying a flat near Estepona, a town at the western end of the Costa del Sol.

"In the long term, I think prices will come back quite quickly. For those who hold their nerve and hang on, I don't think there will be a problem in a couple of years time."

Property glut

Such optimism has been in rare supply recently, with much of the talk about the Spanish market focusing on how severe a slowdown could be rather than if it will happen.

The main problem afflicting the market, experts say, is the glut of properties available after the furious building spree of recent years.


There are too many places being put up

According to industry figures, more than 800,000 new homes were built in 2006, four times the number in the UK.

The growth has been fuelled by the low interest rates of recent years, the dramatic growth in the Spanish economy and seemingly unstoppable demand for new properties among Spaniards, migrants and tourists.

This, in turn, has led to handsome investment returns with many people buying properties off plan and then selling them on at completion at a significant profit.

But that rosy picture has steadily begun to cloud over in the past year.

Housing has reached saturation point in many of the most popular resort areas, resulting in properties going unsold and prices stagnating.

"The market is virtually dead," says Dr Ron Sillett, a retired teacher who is trying to sell his property near Malaga, bought more than 20 years ago.

He blames the current situation on rampant over-development in southern Spain.

"There are too many places being put up. On every single patch of land, there are apartments blocks going up."

In extreme cases, Brits have even reported making a loss on their investment, something which would have been unheard of just a few years ago.

Uncertainty about the Spanish economy - which has consistently enjoyed growth of more than 3% in recent years - has exacerbated these concerns.

With interest rates rising across the eurozone, there are concerns that people who may have overstretched themselves to buy properties in recent years may suffer.

Spanish households currently have some of the region's highest levels of debt.

Rising borrowing costs will also hit companies, including property developers - many of which have large debts.


I think we are underestimating the sensitivity of the Spanish consumer to a downturn in real estate
Philip Lawler, Nomura

One analyst says that a "hard landing" for the property market cannot be ruled out.

"I think we are underestimating the sensitivity of the Spanish consumer to a downturn in real estate," says Philip Lawler, from investment bank Nomura.

But there are those who warn against a knee-jerk reaction, saying that while the boom times in the property market may be over, talk of a crash is premature.

"Investment in the Spanish construction sector and consumption will slow," says Astrid Schilo, chief European economist at HSBC.

"But I don't think there will be a collapse in the Spanish economy."

Setting aside the wider economic considerations, the fact that Britons have always had a love affair with Spain is enough for many people wanting to buy property there.

As far as Richard Leigh - who is looking to rent out his property to tourists - is concerned, there is little chance of an costly Eldorado-style flop.

"People will always want to go to Spain because it is a nice, sunny place," he says.

"The golf courses are great and it has great shopping for those who don't want to play."