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Seeing the bright side of property crash
While hardly a day passes without at least one developer, builder or property agent filing for creditor protection, Spain's property sector is trying to put a brave face on its current woes.
- By Mark Mulligan, Financial Times
- Published: 00:17 April 16, 2008
While hardly a day passes without at least one developer, builder or property agent filing for creditor protection, Spain's property sector is trying to put a brave face on its current woes.
Despite a backdrop of oversupply and tight credit conditions that have driven down prices and sales, not all exhibitors at the current Sima international real estate exhibition in Madrid have lost their sense of humour.
At one large stand, a wrestling ring draws visitors as a caped Captain Avantis promotes a rental plan with buying option by defeating the "Evil Mortgage Man" in a staged bout.
At Zapata Real Estate nearby, discounts on new flats are offered under a jovial poster urging people to "put a happy face on the bad times".
For potential first-time or holiday-home buyers at least, seeing the bright side of Spain's property crash is becoming easier.
A glut of new homes and apartments - particularly along the Mediterranean coast - is driving down prices after 10 years of soaring inflation. Some estimates see average residential prices nationwide falling by six per cent this year.
The International Monetary Fund, meanwhile, estimates that the market is up to 20 per cent overvalued. Buyers have already noted discounts of this magnitude at slow-selling villa and apartment developments in overstocked regions such as Valencia and Murcia.
However, these are exceptional cases, says Fernando Lopez, sales manager at Bancaja Habitat, a Valencia-based developer. A surge in land prices in recent years, fuelled by speculation, municipal kickbacks and a subsequent crackdown on re-zoning and corruption, has already squeezed developers' margins, he says.
"Obviously, prices are coming down. But if buyers are waiting around for across-the-board reductions of 20 or 30 per cent, they're going to be disappointed."
Like many Sima participants, Bancaja Habitat is using this year's trade fair to push badly performing residential developments. Taking a cue from fashion retailers, it is offering discounts of 10 to 20 per cent on "last year's stock" - about 400 properties that the company had hoped to sell on completion at least six months ago.
Grupo Prasa, another coastal developer, also hopes to clear lingering stock during the fair, which ends this weekend. Its lure is a three per cent discount. "The target is to sell 1,000 units during the show," says Miguel Mora, Prasa's marketing chief.
A few years ago, such a target would have lacked ambition, as speculators and long-term investors snapped up Spanish property off-plan.
But surging prices and a series of corruption scandals have eroded Spain's relative appeal against cheaper areas such as Bulgaria and north Africa. Meanwhile, banks, starved of wholesale funds, have reined in lending, exacerbating the crisis.
Scores of Spanish developers, builders and property agents with cash-flow problems have been unable to renegotiate debts, setting off a wave of consolidation and insolvency filings. Figures show 119 companies in the sector filed for creditor protection in the past three months, compared with 48 in the first quarter of 2007.
Large gaps in the Sima layout, where exhibitor numbers are down more than 25 per cent on last year, provide a grim illustration of the market's collapse.
"Last year everyone knew a slowdown was coming, so they came out in force," says Lopez of Bancaja Habitat. "But nobody saw the credit crunch coming . . . For consumers with access to credit, this is a buyer's market."
Trend: US companies focus on European investors
US companies are looking increasingly to European investors to help to finance projects or buy residential stock in tourism and retirement resorts, say organisers. The growing interest from non-European developers and selling agents is partly due to the strength of the euro against the dollar.
"However bad things get in Europe, the US is still looking ridiculously cheap," says Darren Styles, chief executive of Brooklands Group, a media company devoted to buying overseas property.
At the luxury end of the market, where most investors are impervious to financial crises, Europeans are looking to the US or Latin America for dollar-denominated bargains and higher yields.
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