The Guardian
3 aprile 2008
Spain to struggle for years as real estate flops
By Ben Harding
MADRID, April 3 (Reuters) - Spain's fast-crumbling property sector, the driver of stellar growth for a decade, still has a long way to fall and will condemn the economy to years in the doldrums, economists believe.
Last week official figures showed January home sales slumped 27 percent year-on-year and anecdotal evidence suggests the situation is far worse.
Juanra Doral, director of operations at Facilismo.com, one of Spain's biggest property websites, said sales on its site have more than halved year-on-year.
"We are witnessing an almost complete halt. Nobody expected it to be so severe," he said, adding that it now took over 11 months to sell a house compared with three this time last year.
A source at one nationwide estate agents, who asked not to be named, said her firm had sold barely a dozen properties this year against around 400 in the first few months of 2007.Though demand remains strong, perhaps as good as last year says Doral, banks have cut back lending sharply to both buyers and developers in the wake of the global credit crunch.
News of the collapse of developers, squeezed by terrible sales and banks turning off the tap, comes almost daily.
This will pull the rug out from beneath an economy which grew at well over 3 percent a year for a decade thanks to a booming construction sector which accounted for almost 20 percent of gross domestic product.
In the last half of March, construction firm SEOP and developer Cosmani filed for administration, while many others including Martinsa are negotiating with creditors.
However things will get much worse later this year because of the building sector's natural inertia, economists say.
"For now, construction is slowing but it's still positive because people are building the houses they started six, 12, 18 months ago," said Jose Alzola, a London-based economist with Citigroup.
Home starts will halve to 300,000 this year, the Madrid Association of Property Developers (ASPRIMA) said last week. The group had estimated 400,000 building starts but its chairman told journalists the estimate had become obsolete in the time it took to publish the report.
ECONOMY ON SPEED
On Tuesday, the Bank of Spain caught up with private sector economists and slashed its economic growth forecast for 2008 and 2009.
It said Spain would grow at 2.4 percent -- it had forecast 3.1 percent up to now -- and at 2.1 percent next year, which is almost half the rate Spain enjoyed in 2007.
More pessimistic analysts say Spain faces 5, maybe 10 years of painful adjustment, as it works off the excesses of the unsustainable property boom and a glut of credit-fuelled consumption that has left it with one of the world's biggest current account deficits."When it comes to the imbalances within the economy, Spain is like the U.S. on speed," said Diana Choyleva, a senior economist at Lombard Street Research in London, who forecasts growth of 1.8 percent this year and just 1.0 percent in 2009.
Dominic Bryant, an economist with BNP Paribas said the prospects for growth would look even more grim when investment in construction, which was flat in the latest GDP data, starts an inevitable fall of 25 or 30 percent.
"You can only imagine things getting worse because the housing correction has only just begun," he said.
The bursting property bubble has spread quickly to the rest of the economy.
On Thursday came news that the services sector contracted last month at the sharpest pace in nearly nine years of Purchasing Managers' Index surveys. That followed a six year low for the manufacturing sector in a parallel survey on Tuesday.
Some 240,000 people have lost their jobs in the past 12 months, bringing March unemployment to 2.3 million. Retail sales are falling and business confidence is at an eight year low.
The ASPRIMA property group last week warned that the sector could shed 750,000 jobs this year and next -- a number which would be difficult for healthier infrastructure firms to absorb.
GOVERNMENT BAILOUT?
Lacking interest or exchange rate levers due to Spain's membership of the euro, the newly re-elected Socialist government hopes to spend its way out of trouble.
The government is preparing a 22 billion euro ($34.4 billion) stimulus package and may accelerate its 250 billion euro, 15-year infrastructure plan.
However as tax revenues fall sharply, the budget surplus has shrivelled to 0.84 percent of GDP in the first two months of the year from 2.2 percent for all of last year. A spike in unemployment benefit will eat into that further.
"I'm not sure they are going to have the same margin for manoeuvre on the fiscal front in 2009 because the cyclical downturn has been so quick that it's wiping out the surplus," said Alzola.
With hundreds of thousands of properties standing empty, prices are likely to fall 8 percent this year after tripling in the last decade, ASPRIMA has said.
"Forget about Spain," Lombard's Choyleva tells real estate clients asking her whether to invest in the country. "It's going to be a long time before this economy returns to anywhere near the growth rates it enjoyed over the last 10 years." (Additional reporting by Jane Barrett) (Reporting by Ben Harding, Editing by Gerrard Raven)