24 February 2016 – Real Estate Press
The price of urban land in Madrid and Barcelona has more than doubled since the lows of 2012 and is now threatening the recovery of the real estate sector, as property developers are being forced to put homes on the market at prices that consumers are unable to afford.
Domestic property developers are being the most active in denouncing the increase in land prices, driven by the scarcity of urban plots and the difficulties involved in obtaining licences for new developments.
In the case of Valdebebas, a development located 21 kilometres from the centre of Madrid, the ‘repercussion value’ per m2 has increased from €700/m2 at the beginning of 2014 to €1,200/m2 last year, with values now reaching €1,600/m2. “Land prices are increasing at an alarming rate in Madrid and Barcelona”.
According to the real estate consultancy firm Irea, the volume of land purchases tripled last year to reach €929 million (representing 7% of total real estate investment). According to the report, the majority of transactions involved plots of land assigned for development, which accounted for €706 million of the investment, whereby multiplying the figure recorded in 2014 by 7x.
Domestic investors accounted for just 1% of this investment, with real estate companies, many linked to international funds, accounting for 43%. Nevertheless, the bulk of the funds were direct investments by funds (38%) and Socimis (18%), which together invested €523 million.
The largest land purchase operations last year were seen in Barcelona and Madrid. In Cataluña, Neinor Homes, the property developer controlled by the fund Lone Star, purchased land worth €200 million, where it plans to construct 1,500 homes. Moreover, Vía Celere invested €78 million in the development of homes in Barcelona (Magòria and El Fòrum) as part of a joint venture with the fund Chenavari. Meanwhile, Corp acquired land in Sant Boi, Arenys de Mar and Molins de Rei to construct 850 homes. In Madrid, the US fund Castlelake bought a batch of four plots of land for residential use in Boadilla del Monte from Sareb, and Grupo Lar and Pimco joined forces to buy a plot of land in the centre of Madrid for €120 million.
The recovery of land prices is being driven by a rise in prices and sales in the wider real estate market, and has led the primary owners of land, namely Sareb and the financial institutions, to reduce their land sales and opt for direct development instead. Sareb will begin work on 13 housing developments imminently, ten of which will be constructed by Solvia, the real estate arm of Banco Sabadell, one of the most active banks in the development segment, with more than one thousand homes under construction across Spain.
Original story: Real Estate Press
Translation: Carmel Drake