On average, 493,000 properties were built in Spain each year between 1998 and 2005, with up to 800,000 in 2006, but the number of new builds is now falling – presenting investors with prospective bargains, due to the unsold excess on the market.
Valencia property developer, Llanera, has become the first high-profile victim of the credit crunch, declaring insolvency after failing to meet payments on 748 EUR/sqm of debt, including 124 subsidised properties (for Spaniards on low incomes) 75% of which have been sold.
Banco de Valencia has granted funding and confirmed its continuing financial support. Caja del Mediterraneo, will also continue financing another Valencia project. Llanera’s Spanish projects mostly concern social housing and infrastructure including six schools, building of which has been halted.
The fashionable builder, with links to Charlton Athletic Football Club, was unable to reach agreement with Lehman Brothers and other banks on refinancing. Alberto Matellan, an economist at Inverseguros, said arrears would never reach US levels because of Spain’s solidarity culture. “The extended family steps in to help meet the payments.” he said, “Defaults are very rare.”
Spanish property prices have risen 280% since 1997. Bank of Spain governor, Miguel Fernandez, Ordonez said Euro membership was the root of the trouble, causing the economy to over-heat badly, pushing house prices 35% above their sustainable value. “The single monetary policy has meant that excessively loose conditions for our economy have been almost continuous. A less relaxed tone would have been better for our needs,” he said.
Interest rates halved almost overnight when Spain joined the Euro. Llanera said it faced “extreme difficulties” as a result of reliance on short-term borrowing and blamed the squeeze on the “evolution of the Spanish property market and the relentless increase in Euribor”. The Euribor rate, used to price floating rate mortgages in Spain (98% of the total), has jumped to a 6-year high of 4.72%. 8 rate rises by the European Central Bank since December 2005 have taken their toll, but the final blow was the sudden widening of Euribor spreads by an extra 70 basis points over ECB rates since the Summer credit squeeze.
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