Spanish builders go on diversification shopping spree

Spain's real estate companies are increasingly eyeing major acquisitions abroad to diversify in the face of a slow-down of their staple activity. Building homes has always been where the money has been made in Spanish real estate. Offices, sports centres, shopping centres are also lucrative, but the main market is constructing villas, mainly for those northern Europeans who have always dreamed of a retirement home in the sun.

More than three million houses have been built in the past four years, most on Spain's Mediterranean coast. Yet, after five solid years of skyrocketing house price rises, the building boom has, inevitably, started to slow down. Next year, house prices are expected to go up by less than double digits - 8% - for the first time in five years.

A report by the Spanish savings bank La Caixa predicted 'everything appears to indicate the long expansive cycle has now hit a ceiling'. Simon Walley, deputy secretary-general of the European Mortgage Federation, said: 'Supply has caught up with demand in some areas, notably on the Spanish costas.'

But the Spanish real estate sector has not been caught by surprise. Instead, cash-rich from years of rising house prices, they have gone on a shopping spree. They have started to diversify in two directions, using their considerable financial muscle to move into foreign markets and to move into new fields, most notably renewable energy.

Ferrovial, the construction and services company, bought the British Airports Authority for EUR 15.2 bn this year. And, ACS, another major Spanish builder, bought a 10% stake in Iberdrola, Spain's second biggest energy company. Acciona, another large real estate company, bought a 20% stake in Endesa, the largest Spanish utility. Grupo Inmocaral is to buy-up the French building firm, Societe Fonciere Lyonnaise next year and is looking for other companies in Holland, Belgium, Germany and Britain.

Luis Portillo, chairman of Grupo Inmocaral, said: 'Our strategy is to concentrate in Britain and German to give us more presence in Europe.'

But apart from buying companies abroad to fortify their own positions in the market, Spanish real estate firms are also looking east to build and sell properties in places like Warsaw and Bulgaria. With many Spaniards unable to afford to buy homes in their own countries, some are starting to invest in properties in these countries.

Spanish firms are also capitalising on local demand, particularly in Poland. Lubasa, one of Spain's private construction firms, is building offices in Warsaw and aims to expand in Croatia and Hungary. Javier Sanchis, of Lubasa, said: 'We are aiming to expand into this East European market.' Other construction companies with similar aims are Bancaja Hábitat and Sedesa.