Pedro Solbes

The Spanish government has rejected calls to use public funds to jump start the ailing Spanish property market and bail out struggling developers and real estate agents.

Property sector associations have been urging the government to intervene with public funds, and introduce urgent measures to stimulate demand, for example by subsidising mortgages (guaranteeing mortgage rates below 5%), and offering property buyers yet more tax breaks.

But Pedro Solbes, Finance minister, has now ruled out using 'artificial methods' to prevent a 'necessary adjustment' in the property sector.

It is a huge disappoint to the industry. After a decade long boom, in which property prices more than doubled, and housing affordability started flashing red, the Spanish property market has seized up in the face of rising interest rates, massive over supply, and falling consumer confidence.

Developers, many of whom have been churning out identikit apartments to satisfy speculative demand, have seen sales collapse by 60% or more in recent months. With banks reluctant to lend money, and operating cash flow slowing to a trickle, many developers are facing acute liquidity problems, and the list of developers seeking protection from their creditors gets longer by the day.

Real estate sector associations have condemned the decision. Guillermo Chicote, head of the constructor's association, has said; 'We are not asking that they help us, just that they build confidence amongst potential buyers.' He claims that the downturn will put a million construction sector workers out of work.

'Concrete measures are necessary, even if it means intervening in the economy,' said José Manuel Galindo, speaking on behalf of the developers of Madrid.

Some developers admit that they raised their prices too fast in the boom, which is why they are now struggling to sell an estimated stock of 500,000 newly built properties.

Others say the developers should simply drop their prices and that, in itself, will stimulate the market. 'They have just been too greedy. Why should the public bail them out? If they dropped their prices I am sure we would see a surge in interest,' said Frank Williams, an expat British real estate consultant based in Malaga.

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