MADRID (Reuters) - Walk through Madrid’s vast and near-empty exhibition complex this week and you start to understand the brutality of Spain’s property crash.
Two thirds of the exhibitors attending last year’s Madrid Property Show (SIMA) are absent this week — gone bust, too cash-strapped, or given no choice by court-appointed administrators keen to save money.
Nozar, one of Spain’s biggest builders, said such shows imposed too great a cost in the current climate, so it was staying away.
Spain’s biggest homes fair used to be quite a party.
A new generation of property magnates would toast their good fortune on huge stands costing a million euros ($1.4 million) and more for the five-day event, and thousands of buyers queued to be part of Spain’s great property love affair.
Low interest rates and rising wealth from the late 1990s encouraged millions of Spaniards and foreigners to pile into the market then ‘flip’ homes on for a quick profit.
Prices soared — tripling in a decade — and the market responded by building 690,000 new homes in 2007, though Madrid building association Asprima estimated typical demand was just 300,000 a year.
Beyond the environmental cost, Spain’s economy became dangerously skewed toward residential construction — accounting for roughly 9 percent of national income at the height, according to Morgan Stanley — before the credit crunch snuffed out the boom and sent record numbers out of business.
In April there were 729,000 registered jobless from the construction industry, or 20 percent of the national total.
“This is a show that has always reflected the state of the sector. It shot up with the sector, and now it has shrunk at the same rate,” said Fernando Urias, SIMA’s head of communication.
The exhibition, which last year spread over five halls the size of 12 football pitches, has shrunk to one. Inside, the atmosphere is understandably sober.
Where 40 or 50 builders once vied to throw the most lavish opening party, this year only a handful bothered.
Free cars, shopping vouchers and other gimmicks offered by increasingly desperate developers at last year’s fair have gone, replaced by a total focus on price.
Some builders are discounting by up to 50 percent in order to kickstart sales that have fallen 34 percent across Spain in the year to March, to bring in cash and pay down debt.
“People are much more demanding and are clear what they are looking for: a price they can pay,” Housing Minister Beatriz Corredor told developers at the start of the event.
Nurse Pablo Bravo and social worker Sandra Benito, a young couple looking for an apartment in Madrid, said properties that cost 400,000 euros six months ago were selling at the show for 300,000, though that was still too pricey for them.
The most obvious absentees are builders of coastal holiday homes, who dominated SIMA in its prime, as recession and the weak British pound lay waste to the second-home market.
Urias said it was only when colleagues were scouting for exhibitors for an event in the Mediterranean city of Malaga that they realized how many had gone to the wall.
“When they called companies to sign them up again, they discovered half of them had disappeared,” he said.
Consultants PricewaterhouseCoopers say 38 percent of firms filing for administration in the first quarter were builders. Last week the chairman of Afirma, one of the biggest exhibitors, said the slump would wipe out half the industry.
In their place, banks like Caja Madrid and Santander have prominent stands. They previously came to offer mortgages, but now their sales reps sell homes that banks took on to their books from indebted property developers.
Financial analysts say taking on property assets rather than letting developers default hides banks’ true level of non-performing loans — bad loans are up fourfold to 4.18 percent in the year to February — storing up future problems for the Spanish economy.
Writing by Ben Harding, editing by Will Waterman