Property and building sectors to suffer fourth consecutive year of misery

It was the first sector to be hit by the crisis, and everything so far suggests that it will be the last to emerge. Spain's property sector is something like a Russian matryoshka doll: within it lie multiple crises.

As the fourth year of the recession draws to a close, the outlook remains gloomy: the number of new mortgages is still falling; house sales have dropped by 38 percent; the number of empty properties is on the up; and prices are plummeting yet further. The number of housing startups fell 24 percent this year compared to 2010.

At last week's Barcelona Meeting Point, the country's largest property trade fair, it was clear that there is no sign of the market picking up any time soon. The number of companies attending the event was 265, down from 650 a few years ago. The main players were Spain's banks, which have a huge stock of properties either seized from private buyers who have been unable to meet their mortgage repayments, or from construction and real estate companies that have gone bust.

A total of 1.25 billion euros of offices, shopping malls, hotels and warehouses changed hands in the first nine months, 52 percent less than a year earlier, according to data compiled by Savills Plc. "Unless there's a huge deal in the last quarter, we will be looking at the worst year in terms of investment volumes since 2001," says Gema de la Fuente, head of research at the London-based broker.

Pedro Pérez, the head of G-14, Spain's real estate lobby, pulls no punches, saying that the sector is "going through one recession after another," and that worse may yet be to come. "We thought that we had hit bottom, but we will be ending this year with just 80,000 housing starts and 250,000 more jobless in the construction industry alone," he says.

Ricard Fernández, the director general of real estate company Habitat, paints a similarly bleak picture. "We were in denial for most of 2007; in 2008 we were coming to terms with the problem, and the fact that we would have to lower prices and address refinancing issues, along with people not being able to repay their mortgages. When we thought we were through the worst of it, we realized that we were still addressing the same issues as the year before: we still haven't got to the point where we can build houses at lower cost," he says.

Government cutbacks mean that the state has been unable to pick up the slack by building low cost housing for rental. At the same time, the banks are warning that the recapitalization requirements being imposed on them by Brussels mean that there will be even less credit than there has been until now.

With sales in freefall, the big problem remains selling off the almost 700,000 new homes that are still empty. "We had hoped that by this year we would have been able to see a reduction in this surplus," says Eduard Mendiluce, head of saving bank CatalunyaCaixa's property division.

Property companies point out that there is an imbalance in the number of empty properties, and that there are even areas of the country, notably the main cities, where there is a lack of housing. Germán Flores, director general of La Llave de Oro, one of the biggest players in Catalonia, says that the sector needs to work together. "We have to share losses, reducing debt by lowering prices so that more properties can come on the market," he says.

Andreu Mas-Colell, the Catalan regional government's economy chief, says that help is needed from the European Union, but remains optimistic that a country with a strong tourism and logistics industry can recover. That said, prices of new seaside homes and older houses in inland villages popular with overseas buyers have fallen by half in some areas on the Mediterranean coast.

With a 21 percent jobless rate, Europe's highest, Spain is struggling to meet a deficit target of 6 percent of gross domestic product this year as growth slows and the threat of Europe's sovereign-debt contagion increases.