The expression Spanish real estate crisis or property crisis that began in 2008 refers to the set of economic indicators (sharp fall in the price of housing in Spain, credit shortages, etc.) that, with all their severity in 2010, would evidence the deterioration of real estate expectations and of the construction industry in SpainEl Banco de España no ve el fondo de la crisis inmobiliaria. (in Spanish) in the context of a global economic crisis and the property bubble in Spain. Such indicators would be, mainly, the decline in units sold, the sharp fall in housing prices (more or less pronounced depending on the region) and the increase in the number of developers and construction companies declared bankrupt or in financial difficulties. Spain, however, is not the only country affected.Ladrillos rotos en ambas orillas del Atlántico (in Spanish). The crisis has spread to other areas, leading to the 2008–2014 Spanish financial crisis.
Background
Since about 1985 the Spanish construction industry had experienced a remarkable expansion. It was not only a classic economic bubble; it was part of the so-called global real-estate bubble, with the particularity that, in Spain, it became its structural economic locomotive. According to some authors,El mercado residencial español, 1987-2006. Expectativas de vivienda y suelo. Revista de Economía y Financias de Castilla y León, 5, 2002. Ricard Vergés Escuín (in Spanish) the biased economic information would have generated unrealistic expectations of revaluation, price increases and oversupply. The price increase would have been a phenomenon common to all industrialized countries, although with regional variations, and would have been parallel to the expansion of credit.
The Spanish phenomenon would have been characterized by a notable increase in housing starts and an unprecedented growth in hypothec debt, as well as an increase in the importance of construction in GDP and an increase in employment in the sector. On the other hand, there was an increase in housing prices well above the CPI.El modelo inmobiliario español y sus consecuencias de José Manuel Naredo (in Spanish), Comunicación en Urbanismo, democracia y mercado: una experiencia española (1970-2010), 2010, Université París 12 Val-de-Marne.
Beginnings of the crisis 2006, 2007 and 2008
Main article: Subprime mortgage crisis
In autumn 2006, there was an inflexion in the advance of mortgage credit and prices began to fall (cf. Inversión magazine's front page with a categorical "Yes, they are falling"). The accelerators of the crisis seem to have been several. Among the conjunctural factors seems to be the mortgage crisis that began in August 2007 in the United States, resulting in a credit contraction, and the continuous increase in the Euribor since the ECB. This caused an increase in mortgage payments, 98% of which represented variable interest rates in Spain, a fact that could have had an impact on consumptionLa facturación del comercio registra su mayor caída desde 2002. (in Spanish) and, in any case, on consumer confidence. On the other hand, the restriction of the credit market would have left construction companies without financing, with numerous works in progress, unable to find a credit source due to the stricter refinancing conditions,Bancos y cajas cierran el grifo a los promotores para comprar terrenos (in Spanish) thus aggravating the situation in a sector with a high degree of leverage.
Among the structural factors are speculation, the mismatch between supply and demand, unable to meet the high prices of real estate, as well as the lack of flexibility of the real estate market, with difficulties in adapting quickly to market changes (since up to two years can pass between the start of a project and its sale), according to some.
The real estate businessman, Eduardo Molet, considers that the beginning of the real estate crisis in Spain was on June 30, 2006, coinciding with a letter that the Bank of Spain sent to all the banks threatening drastic measures if they continued giving mortgages as they had been doing until then.
Development
At the end of 2007, the news from the Spanish real estate sector began to describe the symptoms of what could be a crisis: a drop in building permits, pre-sales, sales and mortgages.Las hipotecas registran en agosto la mayor caída de los últimos años. (in Spanish).
In the first quarter of 2008, the main construction companies saw a 72% reduction in their sales,La caída del 72% en las ventas de pisos arrastra a las inmobiliarias. (in Spanish). with a revenue of 20 million euros, compared to 500 million euros in the same period of 2007. Since the beginning of 2008, the leading mass media had been predicting a serious crisis in the construction sector, with the sector's own employers' association predicting price reductions of around 8%.Los promotores prevén que el precio de la vivienda se desplomará un 8% este año (in Spanish) For its part, the land purchase and sale sector experienced a sharp contraction during the first four months of 2008, with a drop in sales of close to 100%.El negocio de suelo de las inmobiliarias se esfuma: Las ventas caen un 100% y ya genera pérdidas (in Spanish) Specifically, there was a real estate market "slump"El mercado inmobiliario se desploma (in Spanish) due to the 2008 financial crisis.Las señales de alarma por la crisis inmobiliaria y financiera se disparan (in Spanish)
On May 15, the Don Piso Real Estate Network, one of the largest real estate companies in the heat of the real estate boom, with 400 own or franchised offices, closed all its offices and dismissed 100% of its staff after registering a 66% drop in sales.Don Piso cierra sus 120 oficinas y despide a 350 trabajadores (in Spanish).
As a culmination of the crisis, the country's leading real estate company (Martinsa-Fadesa) declares bankruptcy on July 14, leading to the largest suspension of payments in the economic history of Spain.Martinsa-Fadesa anuncia la mayor suspensión de pagos de la historia en España. (in Spanish). The group's debt is estimated at more than 7,000 million euros. The two financial institutions with more exposure to the suspension of payments of Martinsa-Fadesa were Caja Madrid, with 900 million euros and Banco Popular with 400 million euros.
During 2009, the slump in salesLa venta de viviendas sigue aumentando su desplome (in Spanish). and pricesEl precio medio de la vivienda cae por primera vez desde 1993 (in Spanish). continued to worsen, which is now openly acknowledged by all those involved as a strong adjustment of the construction market.
The real estate crisis, in any case, took place during the Great Recession and the 2008–2014 Spanish financial crisis.La Reserva Federal ya no descarta la recesión en Estados Unidos (in Spanish)
First actions As a way of encouraging renting, the Spanish government provided a series of direct rental subsidies, effective since January 2008,Ya se pueden solicitar las ayudas de 210 euros para alquiler (in Spanish). and has accelerated tenders to reactivate the sector through public works.Fomento se pone manos a la obra y acelera las licitaciones para frenar la crisis (in Spanish). Although it has been suggested by the banks and the construction industry that the government should act directly on the sector to rescue it, going so far as to call for the use of the Social Security reserve and the Pension FundEconomía estudia con la banca ocho medidas para resolver la crisis (in Spanish). (since the 2008 financial crisis and the real estate crisis appear to be intertwined), the government, through its Minister of Economy, rejected the idea, stating that "the adjustment [of the construction industry] should not be artificially prevented".Solbes echa el freno: "No se debe impedir artificialmente el ajuste" de la construcciónEl Gobierno no destinará fondos públicos para impedir el reajuste del sector (in Spanish). Likewise, it has been suggested that free housing should be converted into subsidized housing.
Initial consequences Among the main consequences are an increase in unemploymentEl paro registra su peor mes de enero del último cuarto de siglo (in Spanish). and the consequent contraction of consumption. Likewise, the construction sector suffers, closing up to half of the real estate agenciesLa crisis obliga a cerrar 40.000 agencias inmobiliarias en un año (in Spanish). and leading to the bankruptcy of a large number of construction companies,Las empresas del sector inmobiliario en España podrían reducirse a la mitad (in Spanish). also causing enormous difficulties for the real estate consortiums.La deuda y la nula demanda ahogan a las inmobiliarias (in Spanish).
From the financial and banking point of view, the Spanish real estate collapse compromised the stability of financial institutions, causing mergers to guarantee the survival of some of them,La morosidad acelera las fusiones (in Spanish). forcing others to block the repayment of the investments of certain real estate fundsSantander suspende dos años los reembolsos de su fondo Banif Inmobiliario (in Spanish). and even turning banks and savings banks into improvised real estate agencies.Si quiere un piso, pídaselo al banco (in Spanish).
The first Spanish financial institution in serious difficulties due to the real estate crisis was Caja Castilla-La Mancha, which was intervened by the Bank of Spain on Sunday, March 29, 2009, with its entire management being dismissed and the bank's deposits being covered by the Deposit Guarantee Fund to cover the lack of liquidity.El Banco de España interviene Caja Castilla-La Mancha (in Spanish).
Real estate crisis from 2009 to 2014
Price adjustment and balance sheets Since 2007, the peak of the bubble, prices have continued to fall. During 2009, according to the Bank of Spain, they fell by 12% compared to 2007.El precio de la vivienda en España ha caído un 12% desde sus máximos (in Spanish). The number of sales transactions also continued to plummet.La venta de viviendas sigue sin tocar suelo (in Spanish).
Some authors requested the creation of a bad bank, as Germany has done, which should be taken over by the State. "It is the Swedish model. The real estate bubble would burst. The prices of the apartments would fall as they would adjust to real demand and bank balance sheets could be cleaned up". The problem is that it would increase the state deficit, although the 99 billion planned for the Fund for Orderly Bank Restructuring (FROB) could be used.Como Robert Tornabell, professor of Banking at Esade (in Spanish), in La crisis también ataca a la banca· ELPAÍS.com
The provisions required by the Bank of Spain, that after two years of non-payment of unfinished housing or land, 100% of the credit must be provided, may not be realistic since "Land in the center of cities is always worth money. This rule makes no sense," says Juan Ramón Quintás, president of the Spanish Confederation of Savings Banks. However, the Bank of Spain knows that it cannot relax too much because it would be accused of laxity, but neither can it tighten up too much, because too many institutions could fall. That was the dilemma in the first quarter of 2010.
Additionally, the increase in supply has caused a decline in the price of rental apartments, for 23 months in a row according to statistics from February 2010,El precio del alquiler de vivienda usada en España acumula 23 meses de descensos (in Spanish). which put additional pressure on the price of buying and selling.
In the first quarter of 2014, according to the Sociedad de Tasación (Valuation Society), housing was expected to fall by 5% in the face of meager sales.La vivienda se abaratará un 5% más en los próximos meses ante las exiguas ventas (in Spanish), Idealista.com, 14/1/2014
Evictions and changes in the mortgage law: dation in payment