The Constructions of Homes is Bouncing Back Eight Years Later

05/08/2014 – Cinco Días

The cranes are back. Following the increase which the sales of homes are beginning to experience in various places in the country and the cautious return of prices to positive rates in those places with the most demand, it was only a matter of time before construction would awaken from the slumber which has already lasted eight years. It has been the deepest and longest-lasting crisis the sector has experienced in recent history.

The Ministery of Development has just announced that the permits requested to build homes amount to a total 14,944 houses in the first five months of the year, which still represents a 3.1% decrease on the same period in the prior year. This is a contraction on an overall basis, but a much gentler one than that experienced only one month earlier, when the reduction was 8.8% year on year.

Furthermore, even those areas where the construction activity shows no signs of rising being able to rise above the low figures of last year, it is evident that during April and May, months which fall into the second quarter, those areas have shown more encouraging signs. In May alone 3,264 permits to build homes were accounted for, which represents 9.4% more than 30 days earlier. These are small steps which go towards softening a situation which has reached levels of deprivation never-before imagined.

As an example to understand the magnitude of the contraction experienced in the sector, remember that in the whole of last year only 34,288 homes were built, a figure which is equivalent to 4% (yes only one digit) of everything built in 2006, the year in which all records were beaten (building reached the astounding sum of 865,561 homes). As a result, the almost 15,000 permits which were registered in the period up to this May provide an indication that this year, even if the situation little improves during the remainder of the year, at the end of December there will be more production of housing than in 2013. Above all because there are already seven autonomous regions where in January to May more homes were started than in the same period last year. They include Asturias (+35.8%), Castilla-La Mancha (+10.3%), Castilla y Leon (+12.6%), Catalonia (+9.6%), Valenciana (+14.8%), Galicia (+31.6%) and Madrid (+17.1%).

Absorbing the stock of homes

These are some of the most important regions for the real estate sector, since, for example, sales in Madrid, Catalonia, Valencia and Andalusia usually represent more than 60% of the total. For this reason, it is only logical that the construction of homes should begin in these regions, except for in Andalusia (where it is still decreasing at a rate of 24.9%).

Those areas where sales and absorbing the stock of homes are at their greatest (in the centre of the peninsula and essentially the whole Mediterranean crescent) must be where supply begins to increase again, if we are to avoid the excesses of the past. Still fresh in the collective memories of the property developers is the madness of eight years ago and in that of the citizens the utter swarms of cranes which could be seen for too many miles on end. “That cannot be repeated and we do not believe it is going to be repeated because, besides the fact that demand will no longer return to the levels experienced during the boom, the banking sector will no longer be so eager to lend neither to developers nor to individuals”, state representatives of a real estate company which specialises in the holiday home segment.

In fact, this return of cranes to the places where the demand is willing to buy at reasonable prices, is also tightly linked to turning back on the finance tap. Sources of the banking sector admit that they have started to issue loans again to construction companies with solvent projects “in those places where it makes sense to start constructing homes again.”

And, as was logical, this increase in activity has already translated into the macroeconomic figures published last week. First was the Bank of Spain, which in its last report on the state of the economy in which it estimated that economic growth had accelerated to 0.5% in the second quarter of the year, it highlighted that residential investment had slowed down its contraction from April to June.

It calculated that it would have experienced a quarter-on-quarter contraction of 0.8% in those three months (a rate similar to that of the period from January to March) “in a context in which the main indicators of the real estate market began to show signs of a significant slow down of the sector’s contraction”. On the same note, the supervisor pointed out that the “number of new construction permits no longer showed a downward trend, hovering in the last few months at figures slightly above the historic minimum.” And a few days later, the Spanish Statistical Office (INE) announced that the GDP rose by around 0.6%, above all boosting private consumption and business investment, among which the beginning of this improvement in the construction industry can be found.

Original article: Cinco Días (by Raquel Díaz Guijarro)
Translate: Aura REE

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