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Spanish property boom ends in panic

By Leslie Crawford in Madrid

Published: April 25 2007 03:00 | Last updated: April 25 2007 03:00

Spain's overpriced propertymarket came crashing downyesterday, 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.

Copyright The Financial Times Limited 2007

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