MercoPress. South Atlantic News Agency

Crash of Spanish real state market knocks Madrid's stock exchange

800,000 new housing starts approved for this year,

Europe's main stock markets closed lower in line on Tuesday following a weak performance on Wall Street and the full impact of the Spanish stock exchange hit by a housing market crash.

In London the FTSE 100 index shed 0.77% to close at 6429.50 points, in Paris the CAC 40 lost 0.53% to 5886.03 points while in Frankfurt the Dax retreated 0.89% to finish at 7270.32 points. In Madrid the Ibex 35, which had struck record highs in recent weeks, closed down 2.73% at 14,578.7 points with the shares of leading construction and real estate companies showing sharp losses. Spain's overpriced property stocks came crashing down with panic selling in the real estate sector signaling what could be the end of a 10-year-old construction boom. The sell-off dragged down related industries such as construction and banking and rippled through other European markets as investors worried about its knock-on effects. Sacyr Vallehermoso, the Spanish builder locked in a hostile takeover battle for Eiffage of France fell 8%. Investors got the jitters after Astroc, a Valencian real estate developer, went into free-fall last week when its audited accounts revealed some of last year's profits came from the sale of Astroc assets to Enrique Bañuelos, its chairman. Mr Bañuelos told a press conference he was considering changing auditors. Astroc's shares have fallen 70% in a week. Meanwhile, the heavy debt load of some real estate groups and worries about oversupply, with 800,000 new housing starts approved for this year, compared with an estimated demand for 600,000, also contributed to the sell-off. The sector has also lost its shine as a result of several corruption scandals linked to property deals. Astroc had been the darling of the stock market, rising by 1,000% after its listing last May. The top five real estate groups, Colonial, Metrovacesa, Fadesa, Urbis and Inmocaral, rose 132% last year. During the boom, the real estate sector had attracted some of Spain's richest billionaires, such as Amancio Ortega, chairman of the Inditex fashion empire and a shareholder in Astroc. In an attempt to downplay the repercussions María Trujillo, Spain's Housing Minister said on Tuesday that the real estate market was heading for a soft landing, rather than a crash. House prices rose 7% in the first quarter, their lowest increase in eight years, and in many parts of Spain, house prices are actually falling.