The mortgage crisis affected the Spanish developer

Foreign creditors did not want to support the real estate market of Spain of real estate in Valencia Llanraa was the first serious victim of the credit crisis in Spain. The company announced its bankruptcy after it failed to pay off debts in the amount of 748 million euros.

A company engaged in the construction of elite housing and known for its connection with the Charlton Athletic football club was unable to reach an agreement with Lehman Brothers and other banks on refinancing. This signals that foreign lenders no longer want to support the Spanish real estate market.

The Moody´s rating agency announced that the penal interest in Spain could bounce from 0.37 to 5.5% if the economy is struck by a serious decline. At the same time, there is a clear risk that prices will fall by 20%.

Alberto Matellan, an economist of Inverseguror, believes that credit debts in Spain have never reached the level of American ones, because the culture of mutual assistance is developed here. “Families are large, and relatives help to pay debts,” says Matellan. “Non -payments happen very rarely.”

According to Moody´s experts, since 1997, real estate prices have increased by 280%. And if most banks are quite able to withstand periodic downs, then regional savings banks are quite vulnerable. Many of them effectively coped with risks, starting their own real estate projects, most of which horrified the Bank of Spain.

The head of the Bank of Spain, Miguel Fernandez Ordonese, said that the root of all problems is the country's membership in the euro zone. That is why the economy turned out to be overheated, and housing prices rose more than 35% of their reasonable value. “Unilateral credit-money policy means that our economy will continue to develop in excessively free conditions. Now for us there would be better more tight control, ”the expert said. After Spain joined the eurozone, interest rates in the country were almost doubled.

According to Llanra representatives, short -term loans were the reason for the extremely serious problems of the company. After the collapse of the market of commercial papers and bonds secured by debt obligations, the costs of loans flew up sharply.

The Euribor rate used to calculate floating rates on mortgage loans in Spain, jumped to a record 4.72%mark over six years. The negative influence of the European Central Bank has increased the rate since December 2005. But the last straw was an increase in EURIBOR by an additional 70 points compared to the rates of the ECB after the summer crisis.

Last year, almost 800 thousand houses were built in Spain, after which the market was oversaturated: it has 300 thousand “extra” real estate objects.

04.10.2007 / Ambrose Evans-Pochard Material published in the newspaper No. 186 dated 05.10.2007.