25 September 2015 – El Confidencial
Some people regard it as an Urban Planning Action Plan (‘Programa de Actuación Urbanística’ or Pau) for “rich people” only. But, Montecarmelo, the smallest of the three new neighbourhoods in the north of Madrid – together with Sanchinarro and Las Tablas – has become the talk of the sector. And it is no wonder. The neighbourhood has starred in the most expensive land operation to be closed since the burst of the real estate bubble, and although it did not trigger alarm bells per se, it did raise concern amongst the main players in the market, for whom the memories of the worst excesses undertaken during the boom are still fresh and vivid.
Less than three months ago, at the beginning of July, the company Cogesa, which forms part of Grupo Dragados and is led by Enrique Pérez, the brother of Florentino Pérez (the President of Real Madrid Football Club), paid an “exorbitant” amount for the final few residential plots in Montecarmelo. Specifically, Cogesa paid just under €2,200/m2 for the land, i.e. significantly more than the figure (€1,400/m2 – €1,500/m2) the experts consulted by this newspaper consider should have been paid for the launch of a profitable development, unless, of course, it is developed as a cooperative.
Montecarmelo, which is located next to Monte del Pardo, the Colmenar motorway and the M-40 ring-road, was conceived at the beginning of the 1990s. With more than half a million square metres of land allocated for residential use – 8,500 homes, both unsubsidised and subsidised – it became the destination of choice for hundreds of young couples who saw the neighbourhood as a good place to live that allowed them to travel into the city centre each day to work. It was born as a commuter town (neighbourhood), just like Sanchinarro and Las Tablas, but is now witnessing the “overheating” of land prices that seems to be happening once again. (…).
Knight Frank…estimates that there is only around 50,000 m2 of buildable space left in the development, i.e. 5% of the total, since the remaining 95% is under construction or has already been built. (…).
Cogesa’s bid took the other participants in the tender completely by surprise: Construcciones Amenabar and Grupo CP, two companies that have been involved in previous projects, as well as Momentum and the cooperative DMS have said as much…none of the other offers even came close to the figure that was put on the table by the Grupo Dragados’ company, to acquire the last large plot for sale in Montecarmelo. The company already has a presence in the neighbourhood, with around one thousand homes in several developments. At one of them, Las Terrazas de Montecarmela, the company has been selling homes for just under €3,000/m2.
“Cogesa already has interests there. It owns several plots, which means that by paying the amount it has done for this plot, it has also increased the value of its own portfolio there” says an expert consulted by this newspaper. (…).
However, the most recent land operations are raising concerns that the segment is “overheating”. In fact, the numbers do not add up for some developers. “A those prices, they would have to sell the homes for more than €3,500/m2, and not only is it going to be difficult to find buyers willing to pay that much, the figure also leaves minimal scope for profit. A logical price would have been €1,400/m2-€1,500/m2, because even if the cost of the land attributable to the final price of the homes was 50%, they could be sold at €3,000/m2 and not lose money”, explains a source at one developer, who prefers to remain anonymous.
“At these prices, the only thing that would make sense is a development on a cooperative basis, a formula that this company has adopted in the past. The developers need to make a profit of between 15% and 20%, however, in a cooperative, the manager does not earn any more than 10% and the risk is diluted amongst the cooperative”, says Ernesto Tarazona, Partner and Director of Residential Property and Land at Knight Frank, who believes that the lack of supply in the area benefits any project that is undertaken in Montecarmelo. (…).
Original story: El Confidencial (by Elena Sanz)
Translation: Carmel Drake