residential Market News: Spanish Real Estate Intelligence

Why Are So Few New Homes Being Built In Spain?

20 October 2017 - Invertia

The construction of new homes is recovering very slowly and proof of that are the 65,000 new homes that were started in 2016; but whilst that figure exceeds the levels seen during the first few years of the crisis, it is still a long way below the 700,000-800,000 homes that were started each year during the real estate boom, which saw builders start work on 1,000,000 units at its peak. The question now is why are so few residential developments being started in Spain?

Paloma Taltavull gives some clues as to why so few homes are being built in her article “The housing sector: now and in the future”, published in the Economic Information Notebooks by the Foundation for Savings Banks, Funcas. In it, she analyses the current housing situation, paying special attention to prices and explaining the reasons why rental prices are growing significantly, even though house ownership prices are not. Ultimately, she concludes that “an increase in the supply of rental homes, or owned homes, is the element that could eliminate the tension in the residential markets in Spain”.

Taltavull, Professor of Applied Economics at the University of Alicante, considers that at the moment, sufficient demand exists to start building 200,000  new homes. She thinks that “the absence of sufficient property developers is slowing down the processes to build new homes, despite the recovery in demand”, given that “the sector suffered badly during the crisis, with a high proportion of construction and property developer companies being destroyed”.

“One of the effects of the crisis that still hasn’t been resolved is the destruction of the production fabric, which comprised a high percentage of small- and medium-sized companies, which gave the market a great deal of flexibility”, explains Taltavull (…).

The Funcas collaborator points out that, currently, there is an insufficient network of house builders because they have disappeared, stressing that the small property developers that remain have not yet recovered their confidence, whilst the medium-sized and large companies do not have the capacity to construct very much.

The professor also highlights that “the price incentive is not giving a strong enough push to the construction sector”, given that although “there is surplus demand”, “credit is not flowing” because of the labour market and the decrease in wages, which is a logical reaction by the financial institutions. Paloma Taltavull points out that this problem is particularly acute amongst young people, who “have been mistreated in terms of salaries for a decade”, given that they are the largest cohort demanding homes, but they do not have the ability to pay and the banks will not grant them loans”.

The expert warns that a lack of new housing in the ownership market and an insufficient supply in the rental sector is driving the significant rise in rental prices that are currently being recorded. She considers that a “mix” between the construction of new homes and other measures to promote rental at a break-even point would be ideal. She adds that the Administrations have an important role to play, given that public housing policy is “absolutely key both for revitalising developments in areas that need them and for avoiding poverty”.

The professor thinks that the public initiative could push the private one, especially in the construction of the type of housing that people need, given that they would be adapted to their ability to pay (…).

Original story: Invertia

Translation: Carmel Drake

 
Anticipa Real Estate: House Sales Could Reach 526,000 In 2018

20 October 2017 - El País

House sales in Spain may reach 526,000 units in 2018, up by 9.3% with respect to the 481,000 operations that are expected to be closed in 2017 (which, in turn, represents 10.1% more than last year), provided financing conditions and the performance of the Spanish and Eurozone economies continue on course. Of that total, the bulk will be replacement homes (upgrades) and just 275,000 will involve the creation of new households. Moreover, the prices of new and second-hand homes will continue to rise with a growth rate of 5.8% during the fourth quarter of 2017 and of another 5% during 2018, although they will still be 23% lower than the peaks recorded in 2007.

Those are some of the findings of a report by Anticipa Real Estate, specialising in real estate management and loans, and belonging to the international fund Blackstone, about the housing market in Spain 2017-2019, which the firm’s CEO, Eduard Mendiluce, presented at the Barcelona Meeting Point conference, together with Josep Oliver, a professor from Universitat Autònoma de Barcelona (UAB), whose team compiled the research.

The increase that is forecast by the company with respect to the minimums recorded in 2013, when just 285,000 transactions were completed, will reach 85% by 2018. Nevertheless, according to Professor Oliver, the market volumes are still 42% below the peaks of 2006, when more than 900,000 private homes were sold.

Other figures that are below the maximums reached in the boom years are the number of finished homes (private and social housing properties) in Spain. The report sets a total of 63,400 units for 2019, compared to 62,900 units forecast for 2017. Although these figures represent a significant increase (more than 48%) with respect to the minimum recorded in 2016 (42,700 finished homes), the volume is 90% lower than the expansion peaks.

In terms of Cataluña, the research indicates that the number of private home sales should amount to around 82,000 during 2017 as a whole (up by 10.8% YoY) and 90,000 during 2018 (up by 9.8%). In terms of prices, they are forecast to increase by 6.9% in 2017 and by 6.1% in 2018. Given that the reduction in house prices was greater in Cataluña than across Spain as a whole (almost 45% compared to 37%), prices in 2018 are still expected to be 27% lower than those of 2007.

Original story: El País (by S.L.L)

Translation: Carmel Drake

 
Baupost Finalises Purchase Of Luxury Property Developer Levitt

19 October 2017 - Expansión

The luxury real estate construction sector is retaining its shine. One of the property developers that survived the previous cycle, Levitt-Bosch Aymerich, is on the verge of changing hands. A consortium of American investors, led by the fund Baupost Group, is holding exclusive negotiations to purchase the property developer that specialises in luxury homes, which has a market capitalisation around €200 million.

Sources in the sector explained to Expansión that the operation is in the due diligence phase (the assets are being audited) and that, although no agreement has been reached yet, the operation may be closed soon if the negotiations continue.

Baupost will team up with a local operating partner, Alpine Grove, for the operation. The advisors on buyer include PwC and the law firm Garrigues, on the legal side. Meanwhile, Deloitte Legal is the legal advisor on the sell-side.

According to the latest available information from the Mercantile Register, Levitt-Bosch Aymerich's net equity amounted to €162 million at the end of 2016. The company recorded a turnover of €61 million and an attributable net result of almost €6 million. Besides Baupost, several other US investment funds that are very active in Spain also submitted bids for Levitt. In this way, market sources indicate that Lone Star, Värde and Castlelake all expressed their interest in the company over the last 12 months.

Levitt, founded in 1929, with the construction of a luxury residential development in New York, arrived in Spain in 1971 with the help of José María Bosch Aymerich, who died in 2015.

In 1973, the company undertook its first development on the Monteclaro urbanisation on the outskirts of Madrid. Since then, it has constructed several high-end developments in Madrid and Barcelona, as well as some office complexes.

In this regard, in October 2014, the company sold five office buildings in Madrid to Merlin for €130 million in order to focus on its residential business.

The firm is currently working on some developments in Valdemarín (Aravaca), in one of the most exclusive areas of Madrid as well as on the El Juncal urbanisation in Alcobendas, amongst others.

Shopping fever

If this deal is closed in the end, it will join the fever of property developer sales that has been happening in Spain in recent years. Examples include Lone Star, which purchased Kutxabank’s real estate subsidiary Neinor in 2014 for €930 million. Also, in February, Värde acquired Vía Célere for €90 million and merged it with DosPuntos – the former real estate subsidiary of the SanJosé group -. In addition, that same fund purchased Aelca from Grupo Avintia for €50 million in June 2016.

Meanwhile, Castlelake, which started to back the Spanish housing market back in 2013 with the purchase of land, launched Aedas Homes just a year ago. Other investors are also backing the market through agreements with local groups to build homes, such as the case of Morgan Stanley and Gestilar, and Green Oak and Ibosa, amongst others.

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake