Painful truths about the state of Spain’s real estate sector have been confronted in two recent industry conferences, one in Madrid, the other in Valencia. The slump will decimate the sector, say developers.

Half of all companies in the Spanish property sector will be driven out of business before 2011, according to Felix Abanades, head of the Madrid-listed developer Afirma. “In the short term, in 2009 and 2010, at least 50 percent of the companies in the sector will be lost and for the rest of us, there will be a shutdown in activity,” said Abanades, speaking at a lightly-attended SIMA (Salon Inmobiliario de Madrid) industry conference in Madrid.

Shortly afterwards, Abanades announced that Afirma will have to renegotiate repayment of its 1.44 billion euro of debt, agreed only last June, in the face of deteriorating conditions. It was quickly joined by fellow developer Reyal Urbis, announcing it will have to restructure its 4.9 billion Euros of debt having failed to meet the business plan it agreed with its creditors.

The gloomy view from Valencia

Similarly gloomy expectations of wipe out in the sector were echoed at a real estate sector conference organised this week in Valencia City by the Polytechnic University of Valencia. “Very few developers will be able to survive the real estate crisis,” said Benjamin Muñoz, head of the regional federation of property developers, adding that many developers were badly managed in the boom.

According to Muñoz, one of the big problems facing the sector is the glut of unsold new homes, which number between 80,000 and 90,000 in the Valencian Region alone, more than a third of them holiday homes. There will be no recovery until the glut is liquidated, said Muñoz, who called on banks to be more generous with mortgage financing, whilst warning the sector that it must find its own way out of the crisis, and not expect help from the government.

Given the current state of demand, Muñoz warned that the market can go “four or five years without building any new homes,” painting a bleak future for developers whose business it is to build new homes. Refurbishing property and small promotions is all that is left.

“The restructuring of the business is yet to come because this recession is of unprecedented dimensions. Companies will continue to fold, but more will fold in the course of 2010,” warned Muñoz.

Muñoz called on the Valencian Government to change its town planning laws (which critics outside the sector often call ‘land grab’ laws) describing them “inapplicable and complex”. He said that many of the planning schemes already under consideration will no grind to a halt. “Even if land is reclassified, the banks will consider it a toxic asset.”