Lots of talk of a potential Spanish property crash in the last few days with shares in construction companies down by as much as 60%. Here's one of the less sensationalist articles. Neil, I know you live in Spain, do you have a view on the ground? "Spain feels the heat: UK investors left vulnerable as fears of a crash spread Panic sweeps through construction sector and wipes up to 65% off shares in a week Giles Tremlett Thursday April 26, 2007 The Guardian Britons pursuing their dream of a house in the sun were warned yesterday that an outburst of panic in the Spanish construction sector would see the value of the overpriced properties they have bought in recent years plunge. "This is not good news for UK investors in Spain," said Diana Choyleva, chief economist at Lombard Street Research. "We have had over-investment on a gigantic scale." A wave of panic spread through the Spanish bourse over the past week as property developers saw up to 65% of their share price wiped out in frantic trading. The loss of confidence came amid growing signs that the market was already suffering from overbuilding and rising interest rates on euro mortgages. "We will definitely see house price growth stop and a fall in nominal prices is likely in Spain over the next 12 to 18 months," Ms Choyleva said. Widespread corruption in the Spanish building sector together with property laws in some regions, such as Valencia, which have been denounced as abusive to buyers and owners, had set the scene for this week's dramatic downturn. At the centre of the drama are the coming men of Spain's business world: builders and property developers who have ridden an unprecedented construction boom that shot them into the club of the world's richest people. Shares tumbled last week as fears spread that some of the big future projects on their books - many for huge holiday complexes being planned on a scale rarely seen outside the United States - would never come to fruition. The panic was sparked by the Astroc company of the bricks-and-mortar mogul Enrique Bañuelos, whose rapid rise through the ranks of the world's richest people appears to have come to a sudden end. His Valencia-based firm had 60% of its stock market value wiped out over the past week - a decline that, if it holds, would almost certainly see him ousted from the Forbes list of dollar billionaires that he entered last year. Concerns that Astroc was just the tip of an iceberg prompted share price falls for other previously boisterous construction companies, dragging Madrid's Ibex-35 share index with it. Among those to suffer were the eight other Spanish property developers and builders who joined the list of the world's 946 billionaires last year alone. Long-standing worries about Spain's overheated housing market were transformed into speculation that the bubble had finally burst. There had been unmistakable signs that the construction sector was slowing, as borrowing costs rose in a market where 98% of buyers are on variable rate mortgages. The owners of some 4m holiday homes in Spain, many of them foreigners from Britain and elsewhere, were already concerned at reports that holiday home prices might drop by 10%. Other data suggested, however, that across Spain's building sector, prices and demand were gradually slowing rather than going rapidly into reverse. Bañuelos himself suggested that Astroc stock had been overvalued, while denying that a raft of future projects, which investors had begun to question, warranted the size of the fall. Astroc was floated at €6 (about £4.20) a share last year and reached a peak of €75 in February. By Tuesday it had fallen to almost €14 a share - losing more than 80% since its peak and 60% in a week. The companies which Spaniards have come to associate with the new wealth generated by the property boom - such as Inmocaral and Colonial - also suffered. Shares in larger, more established and more diversified groups such as Acciona, ACS, FCC and Ferrovial, the owner of the British airports operator BAA, also slid by 4% to 7% on Tuesday, though an uneasy calm had returned to the market yesterday. The falls reflected wider worries that Spain's booming economy, which grew at 4% in the last quarter, remains too dependent on the housing market. The Organisation for Economic Cooperation and Development warned in January that Spanish house prices were overvalued by up to 30% and suggested that there might be an "abrupt adjustment in which prices would plunge". House prices have grown at an average of 15% a year since 1999, though the rate has now slowed to 10%. Further along the chain, Spain's big banks, including BBVA and Santander, which have lent to both builders and buyers, also saw stocks drop. About half of all Spanish corporate loans are now in the construction and property sector. Pedro Solbes, the economy minister, tried to calm fears. "Are we in a worrying situation? My thesis is that we are not, because family income is consolidating, there are good prospects for employment," he said in the Senate. José Ignacio Goirigolzarri, BBVA's chief executive, was also unconvinced. "You have to keep perspective," he said. "Yesterday was an indiscriminate sell-off, which affected all sorts of companies, regardless of their size, their business model, their activity, their source of income ... the main scenario is for a gentle slowdown." The fall in Astroc stock came after an auditor's report said Bañuelos had bought property from his own firm worth €150m, equivalent to 65% of Astroc's 2006 turnover. It also said Astroc could be affected by planning laws in Valencia, which could hit its building plans in the region. Astroc said: "No relevant information exists that could be affecting the shares."

I keep saying it ..... As more and more negative press is released regarding property bubbles is released, these headline "CRASH" prophecy's will eventually be self fulfilling. Imagine a set of scales "Good" property news on one side and "bad" property news on the other. It doesnt matter how you analyse the market unless you include investor confidence - and weigh it heavily in the overall picture.

Hi Huw - my view is the same as that expressed by Daniel Talavera (who works along side me here in Spain) which I've copied below. Essentially, there is a short term over supply of new build - hence developers will have a nasty year. But there is still huge levels of demand in Spain (because the economy is still growing). Supply might drop from 600k apartments to 400k apartments per year - and that will drive Spanish investors to buy up CEE - driving up prices (land and property) there too - so that's good news. Hope this helps Cheers Neil Post by Daniel - in reply to Richard ------------------------------------ Dear Richard, What evidence do you have that there is a crash in Spanish or Irish property? All we have seen this week is i) a revaluation of stocks (real estate sector) which ends the speculation on Spanish stocks (real estate) and ii) evidence of some inside dealing type issues within Astroc. We know that prices growth is slowing but a crash? Why do you think FDI will go down? Our evidence is that Spanish investors are charging to the East and spending a lot of money and this latest episode will only increase the FDI. Where do you get you data to show FDI slowing down? In fact, real estate companies partly recovered yesterday from the stock losses and the Spanish stock market is still calm. I do not think that a “bad Tuesday” for the Spanish real state shares in the stock markets is a sign of a crash in the property market. Just a sign that there had been too much stock speculation earlier this year. From our point of view a property market will collapse ONLY when both of these two factors are in play. Both a rapid rise in unemployment and a rapid rise in interest rates. The supply of properties into the Spanish market is slowing rapidly, however there are some imbalances at the moment and we believe this will offer opportunities later this year. Many Spanish developers are investing in other countries, which will reduce the supply of properties in Spain. This means, the demand and the offer are going to be equalized. Therefore, our point of view is that the Spanish market is reaching a point of maturity instead of collapsing. The supply of properties is slowing down (but currently too high) and that demand will continue to be strong as Spain is a creator of new jobs.

Hi Richard - how good are you at reading Spanish newspapers? If good - you would have seen the figures that states that in Q4 2006 just 1.2% of Spanish property was sold to foreigners (98.8% sold to Spanish). Why does this matter to your argument? Well, because the spanish papers are NOT screaming Crash - that is the Brits - and they are buying less than 1% of all the property in Spain. The Brits left this market 1 to 3 years ago - and that is why all the sharp suited property sellers left to go to Bulgaria! Hope this helps. Cheers Neil

Thanks Neil - good to get your view and a sensible viewpoint amongst the histeria. Richard, come clean, were you also predicting doom and gloom after the Asian crisis, 9/11...etc? Huw

Hi Richard - here is today's news (26th of April) El 'crack' bursátil no se trasladará al mercado de la vivienda Los valores del sector vuelven a la normalidad tras la caída del martes translated means... The stock market bust up does NOT transfer into the property market. The stock values of the real estate sector return to normal after the fall on Tuesday. Hope this help calm the nerves. Cheers Neil

Neil, Whilst you say the press may be over reacting and current investors should hold their nerve, surely you wouldn't advocate anyone buying into Western Europe property at the moment when clearly all these markets are at the top of their cycles? Otherwise why haven't PS been selling any property in any of these countries? I think you have to be crazy to be getting into the UK, Ireland, France & Spain at the moment when clearly capital growth will be minimal for the next 2-3 years.

I confess I dont go out of my way to read Spanish papers. My only interest in the Spanish market right now is how current events are impacting on investor confidence / overall sentiment within the UK and other ramped up markets like Ireland. Positive media news articles on the Spanish market are a long way off (British press). "Last year more than 800,000 new homes were built in Spain, which amounted to more than in the UK, France and Germany combined." A little excessive meez thinks. You have to pay attention to whats happening the the USA also. For example the last few days have been very interesting .... the Fed are pumping money - printing it at levels now not seen since 9/11. I fear we will be getting more and more bad news from the states during Friday and the next few weeks - and yet, the stock markets will rise as the billions of newly created $ is pumped into it. "Just SubPrime" HAHHHAAA - no way. http: / /www .marketoracle .co .uk /Article795 .html There are many parallels to our economy in that view of the US market. Recent articles in the FT and Telegraph certainly suggest we have sub prime pain to overcome - nothing like the extent of the US though. I would say that I am moderate in my overall thinking, I certainly dont believe everything I read, - but then I dont need to. Its about what the general public believe and right now I would say that as a country, we are currently in a storm of negative press that will last years. More and more views that WERE considered extreme are now filtering into the mainstream press.

Richard, you should look at some of the stats about demand for homes in Spain - the figures for the south are astonishing for how the population is forecast to grow. Believe it or not there are no-where near enough houses currently so while they can't keep building at 800000 a year there will still be good demand in the long term. In fact, on a big downturn in this area it's a really good long term opportunity - better in my view than Hungary which you seem very sweet on. As for the USA, my view is that it's again a case of some of the press wanting to see the US take a fall. The sub-prime fuss has been well over-blown - it's yet another case of some financial institutions lending a bit too enthusiastically but then over-reacting to the problem. I suspect the regulators also have something to do with it. Yes, there's a downturn in the property market, yes construction workers are being laid off but jobs are still being created and the US economy is remarkably robust. My prediction is that by the year end people will be wondering what all the fuss was about as growth gets back above the 3% level again. Again, time will tell and it will be interesting to see who was right. Huw

I refer you to my recent post in this thread http: / /www .propertysecrets .net /topic /8882 .html entitled "Why there will be a crash", although it refers to the UK, - it applies to Ireland also. And as to why Spain will fall too ...... the simplest answer is because Ireland and UK will fall. I have also posted a tv program link somewhere in these forums - a show all about Ireland. If you've not watched it, then you should.