21/11/2014 – Cinco Dias
Before the real estate bubble burst, housing market had never used stock or surplus production as relevant growth indicators. Cheap financing and well-faring economy providing jobs have boosted dwelling construction which continued to progress feverously even at the beginning of the recession, deep into 2008.
Already in 2006, the construction sector understood the rapid pace may not be maintained for a long time. The pitfall is that it takes between 18 and 24 months on average to complete a housing development, counting from the moment of obtaining all necessary permits and licences. Halting the process is no small task.
The recession caught many developers in the middle of building works as they had only a part of the houses sold out. Then, majority of them opted for finishing the projects and temping the buyers with completed dwellings. However, many municipalities got marked with skeletons of unfinished or barely started buildings. Cranes disappeared.
Return of Lending
Since mid-2013, the market has been picking up from the ashes step by step. Certain activity was spotted, prices and sales geared up, and the path towards improvement has been inevitably taken. Banks started to finance projects again, somewhat reluctantly though. But this factor was the only missing to stop the price slump reaching 50% from value peaks.
Over the dark years, many developments were brought to an end. And now, sharply increased sales could finally help to reduce the new property stock awaiting their new owners. The Spanish Confederation of Associations of Construction Products Manufacturers (or Cepco by its abbreviation in Spanish) employs the same methodology to estimate the stock as the Ministry of Public Works (i.e. basing on purchases and new home construction data).
Thus, Cepco calculates that as of the end of the second quarter of 2o14, there were 465.635 new and unsold dwellings in Spain. The figure means a 14.3% (or 77.930-unit) decrease from mid-2013.
In 2010, the surplus stock hit highest – 692.560 new homes. Since that time, the volume has shrunk by exactly one third, as it saw 220.000 units finding purchasers. This way, the level comes down to the year 2007, reaching 413.642 dwellings in excess.
Is there any optimum stock level for this market, in which, like in other sectors, trespassing the minimum would result in pricing tensions? Experts have diverse opinions on the matter. They do agree, though, that due to Spain being such a tourist-mobbed country, it could afford to premanently have between 100.000 and 150.000 new homes for sale, like it had in 2004, according to the report.
When will the present 400.000-new home volume be absorbed? It´s difficult to tell. Moreover, the sector is aware that many of the dwellings may never be sold because of their location and infrastructure. But specialists do not portend destruction for them.
What we know for sure is that if improvement in lending and favorable economic circumstances persist, the sector will soon notice another clear recovery sign: started homes will exceed the number of finished units.
As Cepco reports, in July 4.641 new dwellings were initiated and 4.410 finished. This has happened for the first time since mid-2007. Furthermore, from January to August, there were 31.075 completed houses and 24.696 started. The perfect scenario would be to construct only in places where the real demand exists.
Original article: Cinco Días (by Raquel Díaz Guijarro)
Translation: AURA REE