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Default Rate of Spain's Property Market Hits 17 pct

Tue 20th Sep 2011

A report by the Bank of Spain has revealed how the default rate of Spain's Property, Real Estate & construction sector reached a peak of 17% after the first six months of 2011, with many Banks, Cajas and investors battling to reduce their exposure to the ailing property market.

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The rate now stands at a record high and is almost 35 times higher than the default rate of 2007, before the property bubble burst.

In the first half of the year Spanish banks estimated a total of €70 Billion of bad debt was held by real estate developers and builders, of loans totalling €414 Billion. The risk was thought to be greater among developers, reaching 17.7% of the total €308bn loaned.

The default rate recorded for property developers in the final quarter of 2008, as the country began it's long slide into recession, was 6.11%, which climbed to 10.8% a year later, and jumped further still to 13.9% by the final quarter of 2010.

As far as the construction sector is concerned, a default rate of 14.7% was recorded in the first 6 months of the year, increasing from 0.72% in 2007 and 12% by the end of last year

The Bank of Spain also noted how lenders were being more rigorous in the issuance of debt in these markets, and had reduced lending in for the tenth consecutive quarter in Q2 of 2011.