For the past decade, Spain's housing market defied gravity. Housing prices nearly quadrupled over the past decade, fuelled by low interest rates. But the collapse of Martinsa-Fadesa, a major real-estate firm, has got many worried.
Spanish property developer Martinsa-Fadesa filed for bankruptcy Tuesday, the first major victim of Spain's housing market crisis, prompting warnings that further failures could lie ahead.
The news led the benchmark Ibex-35 index of most-traded Spanish shares to close down 2.55 percent at 11,151.60 points, near its lowest level since 2006, after falling at one point by more than four percent.
Martinsa-Fadesa said a board meeting late on Monday decided to seek protection from its creditors, and the bankruptcy request was filed on Tuesday.
The move prevents its financial crisis from becoming "irreversible and having grave repercussions on creditors and the interests of all shareholders."
It is the first large property group in Spain to seek protection from its creditors since the bubble burst on the country's once-booming real estate market late last year.
But the head of Spain's property developer association, Jose Manuel Galindo, predicted more bankruptcies in the sector.
"Even though we have no concrete data from other property firms, other cases such as this could occur," he told radio Cadena Ser.
Another major property group, Colonial, was also in trouble this year after declaring more than 8.9 billion euros in debt at the end of 2007.
A takeover bid by the Investment Corporation of Dubai fell apart, but the group later announced it had the backing of major creditors to continue doing business.
The low interest rates that followed Spain's accession to the eurozone in 1999 fuelled the housing boom as Spaniards took out mortgages to buy homes for the first time or to trade up to a larger house.
The market began to suffer early last year as rising interest rates and the international lending crunch hit Spain's credit-fuelled expansion, making it hard to sell property in a market that many argue is oversupplied.
Spain built more than 700,000 houses in 2006 -- more than Britain, Germany and France combined -- and investment in housing accounted for nearly 10 percent of output, more than twice the eurozone average, according to government figures.
But many industry analysts expect Spain to build fewer than 300,000 houses this year.
In a further sign of the slumping property market, Spain's housing ministry reported Tuesday that house prices fell in real terms year-on-year for the second consecutive quarter.
In a research note, London-based Capital Markets said it expected house prices to fall by around 15 percent over the next two or three years.
And Roca, one of the world's largest producers of bathroom ceramics, said Tuesday it would slash almost 400 jobs out of about 2,500 in Spain due to the downturn in the property sector.
Martinsa-Fadesa, a leading property group in Spain, said that despite many attempts it had been unable to obtain a loan of 150 million euros (239 million dollars) needed as the basis for refinancing.
On Friday, the group had requested an extra delay to raise the loan as part of a plan to refinance debt of 4.0 billion euros.
Three of its creditors banks -- Banco Popular, Caja Madrid and La Caixa -- announced they had put aside a total of 542 million euros against their exposure to Martinsa.
Caja Madrid and La Caixa said they are owed one billon and 700 million euros respectively. Spanish media said Banco Popular holds around 400 million euros of Martinsa's debts.
Martinsa-Fadesa has assets estimated to be worth 10.8 billion euros.
Deputy Prime Minister Mara Teresa Fernndez de la Vega said the government is "studying way to minimise the effects" of the move, and will seek to support workers who are laid off.
Martinsa has launched negotiations with unions and wants to lay off around one fourth of its 880 employees, Spanish media said.
Trading in shares in Martinsa was suspended on Monday. Before the suspension, the stock had crashed by 24.74 percent to 7.3 euros, and since Friday it had fallen by nearly half.
Date created : 2008-07-16