Value Creation For Shareholders In Spanish Real Estate Firms, 1996-2007

The years 1995-2006 can be characterized by the enormous momentum and buoyancy of Spanish real estate market, especially in the residential market. Prices have accelerated and supply has tried to match an increasingly active demand, both domestic and international in its origin. 2007, instead, has seen a dramatic deceleration in both transactions and price growth, together with falls in the stock market value of most quoted real estate firms, following the Astroc debacle in Spring 2007. This paper intends to ascertain whether this tendency has been translated into value creation for the shareholders of Spanish real estate firms. The ultimate goal of this investigation is to know whether the real estate boom has also be beneficial for the purchaser of real estate firmsí equity. First, we follow Fern·ndez (2001), in arguing that value creation for the shareholder takes place when the difference between the rate of return accrued to shareholders on behalf of their equity and other market benchmarks is positive. Next, we choose as benchmarks the average return of Ibex 35, the main Spanish stock market index, and the risk free return that can be typically obtained when purchasing public debt. Preliminary findings show that there has indeed been value creation in some years of the period considered. Sharp fluctuations of the stock prices in 2007, however, has prevented further value creation and has put into jeopardize the value gains of previous years. Moreover, the paper documents which firms have created or destroyed more value for the shareholder.