Black day on the stock market for Spanish developers

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This topic contains 10 replies, has 7 voices, and was last updated by Profile photo of Anonymous Anonymous 8 years, 11 months ago.

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  • #53533
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    Anonymous
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    Been very busy today so only just noticed what a bad day it was for Spanish builders quoted on the Madrid stock exchange. That speculative little stock Astroc – the cause of all the ‘Spanish property crash’ headlines back in March, fell 8.7% to €4.84 (down 93% from Feb high), Inbesos down 16.21%, Inmo Colonial down 16.56%, and Renta Corp down 6.18%. Don’t know what brought on this sell off today, but all will be revealed before long. Whatever the trigger was, it’s just the chickens coming home to roost, and there’s more to come.

    If I had spare cash I would short the IBEX-35, which I expect to fall 20% or more in the next 6 months (many of the companies in the Index are developers and banks, and the Spanish economy is in for a rough time with a housing downturn, credit crunch, high inflation, massive current account deficit, and strong Euro). Regrettably I don’t have any spare cash, sob.

    Mark

  • #76778
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    We all know now that property prices will fall not only in Spain but worlwide in the countries that took part in the property boom of this last decade like Spain, Ireland, UK and so on.

    So who is so stupid to buy a property that will lose 3% a year or maybe more with the fact that you can easily get deposits that will give you near 5%?

    The response is only those who need it to form a familly and the ones who find the property of their dreams. How much can be this? I personally dont know but surely a lot more less that in this last decade.

  • #76781
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    Hi Mark

    As an owner in Spain, I am more than aware of the issues relating to the property market at the moment.

    But with respect, the problems at Astroc cannot just be down to the Spanish property market.

    On the 24th May 2006 the share price was 6,77 , within eight months it had risen to 72,60 almost an eleven fold increase in value. We know that they were allegedly over optimistic with their sales figures, but “they” all do it. I worked for two well known Costa del Sol developers; it is rife to allegedly exaggerate sales. It’s all about definition. When is a sale a sale, at the point of interest, at the point of reservation, at the point of deposit paid or when the property completes and is handed over?

    So, what made seemingly stock market savvy investors invest in this company so heavily and so quickly? Other construction companies have suffered, but no where near to the extent of Astroc.

    Incidentally, whilst there is a very real possibility that all major stock markets will end 2008 lower than they began, so far, the IBEX is up around 6% from the beginning of 2007.

  • #76782
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    There is a believe that big companies are reducing their exposure with property companies in the stock market so their balance looks pretty nice before the end of the year.

    This massive sales from high owners could be the cause of the severe correption that continues today with, for example, Colonial about 20% down today.

    It seems that everybody is running away from property market like the Black Death.

  • #76783
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    Yet again there appears to be confusion as to the inflated values of some companies in the financial markets and the effects it will have on all property prices. 😕 The real transparency is,WHEN OR IF the properties/assets need to be sold.

    Take one of the best fund mangers around ,New Stars property fund and see the losses over the year and while its mostly commercial it dosent reflect the actual tangible asset value loss on the properties.

    Fund managers will switch to ther assets so as to save their arses should the must publicised property crash happens and move into safer havens until things calm and this will have a direct effect on the companies value and in some cases a good buying opportunity if it becomes undervalued.

    Over inflated balance sheets(whats new here) and inter-company accounting practices will probably mean there will be many more companies switching assets and posting losses and then many will indeed panic. :?(thats when the money is made and lost )

    Some developers and banks may just feel the 30 to 40% deposits put down on a property say in 2002 on the better developments may just consider that these assets are of a value buy pulling the plug and buy them back off their version of the receiver or bank no doupt in the crooked way they have done in the past. 😈

    Balance sheet sorted,people deposits lost,sell some off to some property fund cheap to sort short term cash flow, equity sorted for future lending.

    All at the expence of the innocent and the ones in it to make some money on what they saw as a sure bet. 😥 (its goin to end in tears) 😥 😥

    Now why would a developer start to hand out refunds,many cant anyway as deposits have gone on paying interest rates on non completed properties/building costs, paying for lifestyles,or court fees trying to stay out of prison.

    Sales commisions of 10%+ have been paid out property in many areas are stable or falling and if realised by giving us back our 30 to 40% deposits+ interest + costs just aint going to happen as this would mean tits up for almost all of them.

    Why ?With a legal system like they have that can be manipulated to avoid what is a very serious problem now for many of them and a potential national financial crisis it would have on Spain itself.

    The loosers will be the Joe public and we will be a blip in the history,all forgotten when the next cycle returns.

    Frank 8)

  • #76784
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    “24th May 2006 the share price was 6,77 , within eight months it had risen to 72,60 almost an eleven fold increase in value.”

    This kind of jump in the price should alarm a seasonal/prudent investor. The company did not discover oil field in the interm which would have made such a high revaluation of its assets etc. Further if there activity was property developments. How many bricks can you lay in eight months to justify the increase. There is a correlation between earning and its constraints.

    “We know that they were allegedly over optimistic with their sales figures, but “they” all do it.”

    Amongst, others this is one reason that I would not invest in the Spanish stock market. irrespective of me having cash or excess to cash. Investing is a science and not an evening at the casino.

    “I worked for two well known Costa del Sol developers; it is rife to allegedly exaggerate sales”.

    If they lie to you on their plans, planning permissions, licence etc why would they not exaggerate on sales ????

    “It’s all about definition. When is a sale a sale, at the point of interest, at the point of reservation, at the point of deposit paid or when the property completes and is handed over”?

    This should be part of the company accounting policy and its application on a consistent basis. The auditors are responsible for it. A s they are the watch dogs for the shareholders. There should be a standard accounting practise that should be applied to the sector and all developers have to conform to it. I am not sure if this done or not in Spain? I expect not !!!! Any deviations from it, the company should be penalised and once this happens shareholders will run for cover

  • #76786
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    Spaniards very afraid about reachind the end of the month with cash:

    http://www.elpais.com/articulo/espana/bolsillo/primera/vez/principales/problemas/espanoles/elpepueco/20071228elpepunac_7/Tes

    Things are very likely that in the USA when the property market crashed there. 2008 seems to be a very bad year specially for Spain.

  • #76787
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    Apotter,

    I never suggested that Astroc’s problems are all down to the state of the property market. I described it as a ‘speculative little stock’, because the volatility you so rightly point out was mainly due to speculation, albeit facilitated by a booming property market. It has also been suggested that the management used methods like a limited free float, high profile investors, and questionable accounting practises to boost the share price whilst distracting attention from the underlying business. It was a classic ‘greater fool’ stock.

    You are right, the IBEX is expected to close up this year, around 8%, though it is falling today, and more than 70% of the gain comes from one stock – Telefonica. For all the reason I mentioned at the beginning I think the IBEX has further to fall than most next year.

    Shakeel’s answer to your question as to when to recognise a sale is spot on.

    Peterparra, it doesn’t surprise me that economic worries are growing in importance for Spaniards. Debt levels here in Spain are Anglo-Saxon in proportion, and the property boom has caused massive economic distortion. Rebalancing the economy will not be easy or painless.

    Mark

  • #76793
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    You are right, the IBEX is expected to close up this year, around 8%, though it is falling today, and more than 70% of the gain comes from one stock – Telefonica. For all the reason I mentioned at the beginning I think the IBEX has further to fall than most next year.

    Two points strike me as strange with the performance of the Spanish stock market.
    1) It has risen over the year, I take your point that 70 % come from the 50%rise in Telefonica. How can the Telefonica share price be so strong? It is a company that is in a priviledged position in that it owns all the lines. It sells off use of their lines to the so called competition, giving them poor service,slow performance on Internet and does everything possible to give “the competition ” the worst service possible. Their own service to Telefonica clients is appalling, I recently tried to cancel a line for a lady who has gone back to live in the UK. The forms took an age to arrive and I was just able to get them back to Telefonica in time before they were ready to cancel the cancellation of the service. People get charged for ADSL they have never requested, high bills arrive but no refunds are made. Their service when ordering a line or ADSL is superb usually, but try to cancel anything, dig in for a long campaign.

    The European Courts have just fined them 151 million Euros, for their antics towards Wanadoo. The Spanish government although not owning the comany now, still defends it to the hilt and an appeal against the European Court decision has been lodged.

    Sorry I have gone on a bit but Telefonica is a pet hate of mine. I know the company is very profitable, but this is only because it has no competition and it can charge exorbitant prices for its services. Spain has the most expensive, fixed and mobile rates and the most expensive and slowest internet service in Europe. Sooner or later the chickens will have to come home to roost.

    2) Spain is being crucified by the high Euro,its main industries , tourism and property sales are in deep recession,unemployment is rising and the “feel good” factor is falling amongst its people. The outlook is not good.

    I agree with you Mark, reckon the Spanish market will fall 20%+ in 2008, my only surprise is that it has defied gravity for so long. The Spanish economic outlook is dire to say the least. The government and banks say everything is rosy but they would ,would n´t they?

  • #76794
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    Hi

    Much the same as the F.T,S.E as far as gravity is concerned including most markets around the world.
    The markets that have gone up the fastest are the ones most follow and are the most hurt when it overheats.

    Frank 8)

  • #76817
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    Mark forgets to add an important caveat lector:

    The downside risk and potential losses involved in shorting are far greater than when contracting off plan for a Villa in Spain at 5 times what it is really worth that is being built illegally.

    Best

    Loco

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