At last week’s annual property fair in Madrid, the number of promoters was down by a third on the previous year — many of them victims of the deepening housing crisis. With fewer buyers milling between models of white-washed housing estates, there were scant queues to see sales representatives. “Since the end of the summer, movement in the market has been very, very slack,” said Javier Roca de Togores, Managing Director of Zapata, a promoter selling homes on Madrid’s southern fringes. “We have seen huge falls of around 70 or 80%.” With prices of existing Spanish homes down by more than 4% so far since peaking in mid-2007 according to one Web site — and the market still overvalued by up to 20% in the eyes of the International Monetary Fund — some firms trying to keep the cash coming are also accepting a shift into rented property. Brokers say opportunist US and north European funds are snapping up coastal plots for 20-25% less than the asking price and new apartment prices, even in Madrid, are 15-20% down on average — a trend yet to show up in official price data. As the rental market accelerates, these buyers may benefit.

Spain has built over 5 million new homes in the past decade, taking the stock to 24 million, thanks to economic growth averaging 3.8%, historically low interest rates, and an influx of immigrants to cities and foreigners to the coastal regions. Construction has been the motor of Spain’s economy and accounts for almost 20% of GDP. But the global credit crunch — which the IMF says could more than halve Spain’s growth rate this year to 1.8% — may strangle lending to a fast-cooling housing market. Roca de Togores said Zapata had just cut the price of some one-bedroom starter-homes by up to 40% to €145,000. Zapata billboards on the Madrid metro show a magician sawing a man in half under the banner: “In bad times, put a brave face on it.”

Spain is one of the hardest-hit markets in Europe alongside Ireland, where prices have tumbled 8.8% in a year, and Britain, where prices fell 2.5% over March, according to mortgage lender, the Halifax. Amid dozens of offers in the aircraft-hangar sized halls of Madrid’s Salon Inmobiliaro property fair, Alicante-based TM Grupo was offering to pay buyers’ mortgages for the first year. Its sales of seaside apartments plunged over a third in the past six months. Developer Afirma, whose precursor Astroc triggered last year’s collapse in confidence when it emerged its then-chairman sweetened sales figures by buying the company’s properties, says it will give buyers back 20% of their deposit. If a home is worth less in five years, it will pay the difference. “It’s a more serious buyer (this year), more worried about the details … who takes longer to decide,” said the firm’s sales director Inigo de Carlos. “Before, it was ‘anything goes’, he buys here or there, because he’s not going to keep the house, he is going to sell it in a year.” Afirma’s sales have fallen 40% year-on-year in the last six months partly because speculators have abandoned the market, he said.

PRICES STILL HIGH
Starting in mid-2007 in Spain’s grossly over-supplied coastal market, Spain’s property slowdown has spread across the country. As developers’ incomes shrivel and banks tighten lending, many are slashing prices, though not all like Zapata are advertising the fact. But prices are still out of reach for many. With a 100-square meter city flat costing about €300,000 ($474,600) in Spain and average wages at just over €2,000 a month, huge numbers of people, particularly the young, have been priced out of the market. Abraham Moreno, a 29-year-old window-fitter looking for a Madrid flat with his girlfriend, said developers he spoke to were not budging much over prices, which have tripled in the last 10 years. “They offer €1,000 or €2,000 (discount) but the prices are still very high,” said Moreno. Complicating matters for the developers, weak chains of buyers and sellers are collapsing easily: official figures showed the number of sales fell by 27% year on year in January.

 
RENTAL RESCUE
Juan Carlos Alcaide, a 32-year-old bus driver, was looking with his wife at buying a new, €350,000, but their flat has been on the market for a year with no buyer in sight. Others in Alcaide’s situation are turning to Spain’s now lively rental market, which benefits from tight supply as only 11% of the country’s housing stock is rented – compared with a European average of around 30%. After decades of under-investment the supply of rental homes is starting to catch up with demand, in part thanks to government efforts to help young adults get their own home. Estate agents say demand is climbing sharply as the sales market stalls. Maria and Marcus, a young married couple from Madrid, said they bought a new home but then realized they could not sell their old one. Their mortgage provider agreed to let them rent out their new property rather than be saddled with it in a falling market. “At the beginning (the bank) was reticent, but now they are getting scared,” said Maria, who declined to give her surname. The latest official data covering the Q4 shows Spanish rents rose by 8% — at almost double the rate of house prices.

Promoters like Reyal Urbis and Habitat — a company which in February averted insolvency with a €1.6 billion refinancing deal — are muscling in on the rental market. And some like Avantis, a Madrid-based developer, offers the option to rent for a couple of years and then buy the property at its original price, minus what has been paid on rent. “We adapt to the economic situation,” said a spokeswoman. “It solves one of the problems that stops buyers — financing — and the general sense that with renting you are throwing money away.” (Reuters)