Spain's property market suffers meltdown

Spain's once-booming property market is in freefall, official statistics have revealed for the first time.

The announcement that house sales had plunged has dashed government hopes for a "soft landing" in the sector that has driven the Spanish economy for more than a decade.

The buying and selling of homes fell by 27 per cent in January compared with the same period last year, Spain's National Statistical Institute (INE) announced yesterday. The collapse coincided with a 25 per cent fall in the granting of mortgages, the biggest drop since 2004. The size of individual mortgages has also fallen, by nearly 4 per cent, as providers fear for the security of their loans.

Shares in Spain's heavily-indebted property giant Colonial rebounded on Tuesday

Colonial's shares had lost more than 23 percent on Thursday, the day after a takeover bid by the Investment Corporation of Dubai fell apart when the sovereign wealth fund failed to reach an agreement with creditor banks to refinance the Spanish group's massive debt.

Colonial, the second-biggest Spanish property group which own offices and malls in Madrid, Barcelona and Paris, was more than 8.9 billion euros (13.8 billion dollars) in debt at the end of 2007.

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Colonial Shares Slump After Banks Block Sale of Unit

Investment Corp. bid for the Colonial unit on March 11, a week after its cash-and-securities offer for all of Colonial was rejected. A slump in the Spanish real-estate market caused Colonial to lose 4.8 billion euros of its value in six months and made it a more attractive target.

Colonial owes 6.3 billion euros to banks including Goldman Sachs Group Inc., Eurohypo AG and Royal Bank of Scotland Group Plc. The company and its biggest shareholders have accepted the offer by Investment Corp., a sovereign wealth fund owned by the government of the Persian Gulf emirate.

The Dubai fund said yesterday that ``if there's any possibility of an agreement with Colonial, apart from the terms contemplated in the March 11 agreement, ICD will consider it.''