Panic in the Spanish property construction sector could spell bad news for UK investors in the country, according to Lombard Street Research.
Developers saw up to 65% of their share price wiped out in frantic trading earlier this week, meaning some could see the value of their properties plunge.
However, other analysts say the crash could actually be a good thing for the housing market, as buyers come to realise that prices can not keep rising.
The loss of confidence came amid growing signs the market was already suffering from overbuilding and rising interest rates on European mortgages.
Diana Choyleva, chief economist at Lombard Street Research, says: “This is not good news for UK investors in Spain. We have had over-investment on a gigantic scale.
“We will definitely see house price growth stop and a fall in nominal prices is likely in Spain over the next 12 to 18 months.”
Panic in the market was sparked by fears some of the future building projects in the country would not be completed.
In particular, the case of Astroc, owned by Enrique Banuelos, caused the most consternation as 60% of its stock market value was wiped within five days.
Concerns Astroc was just the tip of an iceberg prompted share price falls for other construction firms, dragging Madrid's Ibex-35 share index with it.
Despite the obvious threat to the value of properties owned by UK investors in Spain, a wider view of the situation has been taken by some.
Property investment advice firm Assetz believes a correction in the share prices of Spanish property companies will enable the property market to take a breather from a moderate oversupply of new houses, that will help stabilise prices.
Stuart Law, managing director of Assetz, says: “Spanish property company shares were clearly overpriced and investors are bailing out after finally recognising that prices cannot keep growing.
“This could be good news for the property market as a whole, as it will reduce the vast gearing of listed property companies, reduce the high levels of housebuilding which has led to some oversupply in the market, and also decrease levels of illegal housebuilding in Spain, which is very distressing for buyers when they discover their purchase is not secure.”
Assetz says the likelihood of any significant house price drop in Spain, which is currently benefiting from annual growth of around 7%, with a long term growth rate of 5 - 7% looking highly sustainable, especially in the tourist hotspots.
Law adds: “Falling Spanish house prices in real terms is actually old news, not least when talking about new build properties in the tourist locations, as developers have been offering discounts for two years now in an effort to maintain their sales volumes. However, these price reductions have not shown up properly in the house price indices.”
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