European Property Market Crash

Europe

Despite the common European currency, one cannot look at Europe as a single entity during this time.

Spain

Spain is in dire straits, although the issue in Spain was largely home grown, just exacerbated by the financial crisis taking hold of the rest of the world. Massive over-building combined with lax laws, predatory lenders and developers and the falling value of the British pound have created a situation in Spain where it is unlikely to emerge from the current crisis for at least ten years. Already in 2008, more than 1000 Spanish property and building firms will have filed for bankruptcy protection and estimates are that more than 1300 could follow suit in 2009.

The collapse of Spain's decade-long housing boom will send non-performing loans to 9 percent by 2010, from 3.5 percent at present, threatening the solvency of savings banks that hold over half of all property debt, according to Credit Suisse. Spain's first bank bailouts have already been launched to avoid capital problems and the Bank of Spain expects a wave of forced mergers among small regional savings banks or cajas.

Spanish banks have already taken property to the value of €5 billion, and are being forced into debt for equity deals for another €5 billion. With more than 1.5 million unsold new homes on the market (approximately 5 years worth of sales) the estimated €470 billion in outstanding building and development loans will probably never be paid.

Unlike the rest of Europe and the US, Spain is not in a position to undertake massive public works projects to relieve the problem. The country is already far too overbuilt and reliant on construction.

Unemployment is already the highest in Europe, and this will continue to exacerbate the problems. With the British pound continuing to stay weak, SPain has no hope of recovery until the UK and Germany start buying up distressed properties at 10% current values in 2015.