Foros de la Plataforma por una Vivienda Digna

[billy]

In the heyday of Spain’s real estate boom a few years ago, homes were going up so fast brick-makers literally could not bake the things fast enough, and had to import. The locomotive driving Europe’s fastest-growing economy was red hot.

Real estate agent Manuel Gonzalez Blas recalls his job was like working in a grocery store, with customers giddy over low interest rates lining up to buy. “It got to the point where people practically had to show up with the money in their pockets and make a down payment immediately because otherwise somebody else would buy the house the next day,” he said.

But last month stocks in Spanish construction companies, banks and other firms heavily exposed to the property market plunged, the most vivid evidence yet of a widely expected slowdown. The big question now is whether the meltdown signaled a bubble bursting or a jet coming in for a soft landing.

The stakes are huge. Construction and related industries represent a whopping 18 percent of economic output in Spain, which has posted 14 straight years of economic growth and accounted for a third of all new jobs created last year in the euro zone.

And Spain’s voracious domestic demand is key to European Union growth because larger economies in France and Germany are more sluggish.

Also watching closely are the several million foreigners from other EU countries who live in Spain or own vacation homes here, mainly Britons and Germans, worried that their retirement dream homes are losing value.

The hemorrhaging in the Madrid stock market was apparently triggered by the collapse of Valencia-based real estate company Astroc Mediterraneo. It lost more than 60 percent of its market capitalization in a matter of days amid reports a key investor was pulling out and that company profits were boosted by the chairman buying Astroc’s own assets.

Astroc dragged with it major real estate stocks and powerful banks — although the nosedive stopped the next day — and prompted Prime Minister Jose Luis Rodriguez Zapatero’s office to take the very rare step of issuing a statement on events in the stock market. It called the drop simply a correction after a period of strong growth.

Many economists back that assessment, saying the real estate sector is braking rather than crashing. But there is widespread agreement that the heady days of double-digit yearly increases in housing prices — a staple since the late 1990s until last year — are over.

With them goes the warm glow that many Spanish homeowners felt over what they saw as fabulously profitable investments, and perhaps their appetite for snapping up everything from the latest cool cell phone to vacations in Thailand.

“Spaniards felt rich and could go into debt and consume because they thought they were sitting on a gold mine,” said Manuel Gildo Seisdedos, an urban management professor at Instituto de Empresa, a Madrid business school. “That factor is weakened.”

He said the building sector is bound to slash its rate of housing construction — 800,000 units nationwide last year, more than France, Italy and Germany combined. Over the midterm this might fuel unemployment as the labor-intensive industry starts laying off hardhats.

Spain inherited low interest rates when it joined the euro zone in 1999, and people in this country with a long history of home ownership rather than rental went on a shopping spree. Housing prices rose nearly 20 percent, for instance, in both 2003 and 2004.

But interest rates have been rising steadily, and many Spaniards are watching in horror as their mortgage payments rise in tandem: more than 95 of home loans here are floating-rate, not fixed.

The Bank of Spain says Spanish homes are on average about 30 percent overpriced and that crushing household debt — well over 100 percent of disposable income — is one of Spain’s most worrisome problems.

Rodriguez Blas, the real estate agent, says that across the board he knows people who are overextended — builders who can’t fill new apartments, young buyers suffocating in debt, even low-wage immigrants who put savings into a deposit on second homes under construction rather than into a bank account and now lack money to go to settlement and will forfeit that hefty down payment.

And while economists like Gildo Seisdedos shun the bubble-bursting scenario, others are not so sure.

“Spanish housing is about to implode,” Charles Dumas, chief economist at Lombard Street Research in London, wrote after the stock market scare.

He said that while Spain has benefited from the perks of being a euro zone country, such as the low interest rates of a few years ago, it has failed to achieve other things like boosting its historically low productivity rate, cutting its big trade deficit and diversifying from an economy so dependent on bricks and mortar.

“Spain saw Goldilocks at her most beneficent,” Dumas wrote. “Sadly it will now see the bears.”

http://www.naplesnews.com/news/2007/may/13/real_estate_siesta_spain/