Pedro Solbes, Spain’s finance minister, has rejected calls to use public funds to jump start the Spanish property market, and bail out developers struggling to stay afloat.
Property sector associations have been urging the government to intervene with public funds, and introduce urgent measures to stimulate demand, for example by subsidising mortgages (guaranteeing mortgage rates below 5%), and offering property buyers yet more tax breaks.
The new minister of housing, Beatriz Corredor, recently presented a plan to stimulate the property sector with public subsidies and tax breaks, albeit with a focus on refurbishments and the rental market. But last Thursday Pedro Solbes ruled out using “artificial methods” to prevent a “necessary adjustment” in the property sector.
After a decade long boom, in which property prices more than doubled, and housing affordability started flashing red, the Spanish property market has seized up in the face of rising interest rates, massive over supply, and falling consumer confidence.
Developers, many of whom have been churning out identikit apartments to satisfy speculative demand, have seen sales collapse by 60% or more in recent months. With banks reluctant to lend money, and operating cash flow slowing to a trickle, many developers are facing acute liquidity problems, and the list of developers seeking protection from their creditors gets longer by the day.
Having banked massive profits in the boom without a squeak of protest, developer associations are now hollering for a public bailout. It would seem that developers want to keep profits in good times, but socialise their losses when the going gets tough.
Real estate sector associations have condemned the finance minister’s comments as “frivolous.” Guillermo Chicote, head of the constructor’s association, has accused Solbes of “trying to fight pneumonia with cough sweets.”
“We are not asking that they help us, just that they build confidence amongst potential buyers,” he went on to say in a radio interview over the weekend. Chicote argues that the downturn will put a million construction sector workers out of work if the government doesn’t intervene with public funds.
“Concrete measures are necessary, even if it means intervening in the economy,” says José Manuel Galindo, speaking on behalf of the developers of Madrid.
Some developers admit that they raised their prices too fast in the boom, which is why they are now struggling to sell an estimated stock of 500,000 newly built properties. But whilst developers are now calling for public funds to be used to stimulate demand, dropping their prices to achieve the same result appears to be out of the question.