Spain's Property Stocks Drop on Concern Bubble Burst

Discussion in 'Wall St. News' started by S2007S, Apr 24, 2007.

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    Spain's Property Stocks Drop on Concern Bubble Burst (Update1)

    By Alexis Xydias and Sharon Smyth

    April 24 (Bloomberg) -- Spanish real-estate and bank stocks tumbled on concern the country's property boom is imploding.

    Inmobiliaria Colonial SA dropped as much as 22 percent and Grupo Inmocaral SA fell as much as 19 percent in Madrid, leading the slump by developers of homes and offices. Banco Bilbao Vizcaya Argentaria SA, the country's second-biggest bank, declined as much as 3.2 percent on speculation bad loans will rise.

    ``This is the burst of the Spanish real-estate bubble,'' said Alberto Espelosin, a strategist at Zaragoza, Spain-based Ibercaja Gestion, which manages about $7 billion. ``Banks are exposed and have risk.''

    Spanish property stocks have surged amid a rally in home prices, fueled by foreign buyers of vacation houses and an influx of immigrants. Home prices in the country climbed at an average annual rate of 15 percent between 1999 and 2005. In the 12 months through March, the increase was 7.2 percent, the smallest since 1998, according to a government report last week.

    Spanish companies are the top performers in the Bloomberg Europe Real Estate Index during the current four-year stock market rally. Inmocaral's shares have jumped more than 14 times in value during the period. Metrovacesa SA has paced the advance in property shares, climbing more than fivefold, while Inmobiliaria Colonial SA almost quadrupled. The Bloomberg measure more than tripled.

    Inmocaral, Montebalito

    Inmocaral's shares fell 11 percent to 4.34 euros today. Montebalito SA, a real-estate company based in Spain's Canary Islands, plummeted 12 percent to 22 euros.

    Astroc Mediterraneo SA dropped 8.6 percent to 16.10 euros, bringing the decline for the past week to 65 percent. Developments in Valencia may be put at risk by stricter urban planning rules which came into force last year, Astroc said in its latest annual report.

    ``There have been no new developments whatsoever to justify the drop in the stock in recent days,'' said Eva Zaragoza, an investment relations officer for Astroc. The company is due to hold a briefing in Madrid today at 4 p.m. local time.

    Banco Bilbao declined 44 cents, or 2.4 percent, to 18.19 euros. Rival Santander Central Hispano SA fell 33 cents, or 2.4 percent, to 13.45 euros. Banco Sabadell SA declined 1.28 euros, or 3.7 percent, to 33.74. Sabadell said today it has loans worth about 120 million euros ($163 million) linked to Astroc.

    `Warning Sign'

    ``This is a warning sign for the real-estate market in general and for banks that are exposed to the sector, for the risks of increased provisions,'' said Emanuele Vizzini, who oversees about $1.2 billion at Investitori Sgr in Milan.

    Between 1998 and the end of 2006, the amount that Spanish banks lent for real-estate activity rose ten-fold to 107 billion euros, according to the bank of Spain.

    Higher borrowing costs will probably restrict this year's increase in house prices to between 3 percent and 5 percent, according to Banco Bilbao Vizcaya Argentaria SA. Transactions are taking longer to complete, suggesting that seven interest- rate increases since December 2005 may already be deterring some potential buyers.

    ``Interest rate increases, overvaluations, the slowing of the housing market and the subprime crash in the U.S. are all finally adding up in investors heads and causing them to flee property stocks,'' said Guillermo Escribano, a fund manager at Metagestion SGIIC SA in Madrid.

    Construction companies also fell. Fomento de Construcciones & Contratas SA, Spain's third-biggest builder, lost 3.5 euros, or 4.6 percent, to 71.90. Acciona SA declined 4.1 percent to 165.35 euros.

    To contact the reporters on this story: Alexis Xydias in London at ; Sharon Smyth in Madrid at .
    Last Updated: April 24, 2007 10:28 EDT