Inmobiliaria Colonial, a Spanish real estate group, and Gecina, a French property company, are in merger talks that could result in the creation of one of the largest property companies in Europe with some €24bn ($34.6bn) in assets.

Mariano de Miguel, Colonial’s chief executive, said talks were at a preliminary stage and no decision had been taken about the merger.

The consolidation move comes at a delicate moment for Spanish real estate groups, which are under pressure from creditors to reduce their debt levels in a cooling housing market. Spain’s 10-year-old property boom came to a sudden halt this year, with oversupply and rising interest rates piercing an overpriced market. The subprime mortgage crisis in the US also dried up funding for the sector.

Share prices in Spanish property companies have plummeted, and many companies are selling assets to meet interest payments or settle debts that banks are no longer willing to roll over.

Colonial has suffered along with the rest of the sector, despite earning most of its income in France rather than Spain, and from commercial, rather than residential real estate.

“The deal makes business sense,” Mr de Miguel told the Financial Times. “Colonial’s French assets complement those of Gecina. Our gearing ratios would come down, because Gecina has less debt than Colonial, and the combined group would benefit from generating a greater proportion of commercial rental income in France, which is at a more favourable point in the real estate cycle than Spain,” he said.

There is a snag: Gecina is in the process of being carved up by its controlling Spanish shareholders, who have fallen out with one another. A proposed division of Gecina’s assets was rejected by the AMF, France’s stock market regulator, this week. Gecina’s shareholders have to come up with another plan and, in addition, convince the French authorities that they are not acting in concert. Gecina declined to comment.

Mr de Miguel said it would be difficult to evaluate any deal until the French regulator approved a carve-up plan for Gecina.

A merger with Gecina would be the third for Colonial in little more than a year. It would come only months after France’s Unibail merged with Rodamco Europe to create Europe’s largest property company with €25bn in assets.

Additional reporting by John O’Doherty in Paris

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