Spanish developers use offers to ease pain

By Ben Harding and Clara Vilar

MADRID (Reuters) - Spanish builders are tempting cagey homebuyers with free cars, mortgage holidays and hard cash as they try to lift the gloom shrouding the crisis-hit housing sector. Some are also diving into the rental market.

At last week's annual property fair in Madrid, the number of promoters was down by a third on the previous year -- many of them victims of the deepening housing crisis. With fewer buyers milling between models of white-washed housing estates, there were scant queues to see sales representatives.

"Since the end of the summer, movement in the market has been very, very slack," said Javier Roca de Togores, Managing Director of Zapata, a promoter selling homes on Madrid's southern fringes. "We have seen huge falls of around 70 or 80 percent."

With prices of existing Spanish homes down by more than 4 percent so far since peaking in mid-2007 according to one Web site -- and the market still overvalued by up to 20 percent in the eyes of the International Monetary Fund -- some firms trying to keep the cash coming are also accepting a shift into rented property.

Brokers say opportunist U.S. and north European funds are snapping up coastal plots for 20-25 percent less than the asking price and new apartment prices, even in Madrid, are 15-20 percent down on average -- a trend yet to show up in official price data.

As the rental market accelerates, these buyers may benefit.

Spain has built over 5 million new homes in the past decade, taking the stock to 24 million, thanks to economic growth averaging 3.8 percent, historically low interest rates, and an influx of immigrants to cities and foreigners to the coastal regions.

Construction has been the motor of Spain's economy and accounts for almost 20 percent of GDP. But the global credit crunch -- which the IMF says could more than halve Spain's growth rate this year to 1.8 percent -- may strangle lending to a fast-cooling housing market.