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Large Funds Are Reactivating The Market For Land

22 June 2017 – Expansión

The momentum in the residential housing segment is also being reflected in the demand for land on which to build homes. The funds, which were responsible for the first land acquisitions in Spain in 2013, have strengthened their positions in recent years and become one of the main players in this market, even though for the time being, their commitment focuses on buildable land, with the aim of limiting their exposure and avoiding political and structural risks.

According to a report by the consultancy firm CBRE, the number of operations involving the sale of land by companies rose by 13% last year.

In this sense, traditional players such as Realia, Acciona and Metrovacesa Suelo y Promociones, were joined by a new wave of property developers, owned by large funds, such as Neinor Homes (controlled by Lone Star), Aedas (Castlelake) and Vía Célere and Aelca (both controlled by Värde).

Debuts on the stock market

In order to purchase land, these companies are resorting to alternative formulas besides bank credit, such as joint ventures with corporate contributions or searching for new capital in the market through debuts on the stock market.

In this way, Neinor Homes, which debuted on the stock exchange in March, will be joined over the next few months by Aedas, Vía Célere, Testa – a vehicle in which Santander, BBVA and Merlin all hold stakes – and the new Socimi owned by Renta Corporación and the Dutch fund APG, plus the vehicle being prepared for launch by Sareb.

The search for alternative financial resources to bank credit has led to a decrease in the number of mortgages granted to buy land, which fell from 55,000 in 2006 to 6,700 in 2016. That means that just 39% of the urban land transactions completed last year were financed through mortgages.

In addition to the property developers, the other major landowners include the financial institutions and Sareb. Specifically, the banks owned a portfolio of land worth €31,500 million at the end of 2016, whilst the volume of land owned by Sareb amounted to €4,200 million.

In the case of the banks and Sareb, most of their portfolios comprise assets that are under development, which is unlike the case of the new property developers.

Forecasts

According to forecasts, demand for buildable land will continue to rise over the next few months, above all in those regions where there is greater activity in the construction sector.

According to CBRE’s analysts, over the medium term, the dynamics of the land market are going to depend to a large extent on the speed with which the banks and Sareb are able to manage their asset portfolios.

In terms of prices, the higher demand in certain local markets has led to a recovery due to the scarcity of buildable land and the expectations regarding demand for housing. Nevertheless, at the national level, no significant effect on prices is expected, given that the volume of supply is still relatively large.

Moreover, the report says that the recent regulation of real estate assets on the balance sheet of banks may lead to the release onto the market of a significant volume of products over the coming months, which could soften any price tensions.

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake