In December of 2007, “Spanish Property Insight”, an
online publication that highlights the Spanish
property market forecast that the credit crunch and
Spanish property would become strange bedfellows.
Llanera, one of the higher profile developers in
Spain has already ceased business as a result of
this “crunch.” You always hear how incidences like
this are just a return to normality or a soft
landing of sorts and is all part of a recovery
period for the economy overall. If only it were that
simple.
Predictions point to significant decreases in
property values over the next few years as a result
of this credit crunch, but when you look at the
Spanish real estate market in general, the rise in
house and land values over the past 5-6 years would
indicate exactly the opposite. There have been a few
instances where companies with high gearing or high
overhead have depleted their capital supply.
Initially, plenty of developers should be all right,
but there are already indications that plenty won’t
in the long run. Expectations are that there will be
half-finished housing developments littering the
Spanish coastline for the next year or so, but they
will eventually get finished. Suffice it to say, the
Spanish construction boom that has been going on
since 2001-02 is slowly coming to a halt, hence the
pessimism regarding the credit crunch and Spanish
property.
Even without the ongoing credit crunch, there was
really no way that the construction boom could end
gently and gradually. It skyrocketed too quickly,
and when that happens, the crash hits with a
resounding thud throughout the market. Several years
of starting 800,000 homes each year, cement
consumption that was three times that of Germany’s,
18.5% of the GDP going to housing, and building 25%
of last year’s homes with Euro funding has all
equated to this credit crunch. And there is no end
in sight.
