Madrid Leads Spain’s Property Development Drive

23 October 2015 – Expansión

The Barcelona Meeting Point, which has been held this week and the Autumn edition of SIMA, which starts in Madrid today, are both proving to be of particular interest to the Spanish real estate sector. And it is no wonder, given that those two regions are leading the way in terms of property development at the moment. But the reactivation of the real estate sector is not proving to be homogeneous: it is slow, uneven and focused on certain large urban areas. Investment funds and real estate companies have acquired offices and commercial assets amounting to €10,800 million so far in 2015, already exceeding the total figure invested in 2014 (€10,200 million). And investors’ interest, which began in the tertiary sector, is now extending to the residential sector, at the hands of a winning formula: the partnership of large investment funds and local property developers.

Interest in ‘ready-to-build plots’ (‘suelo finalista’) has been increasing in Madrid since the end of 2013, however, given the shortage of land in the capital, attention is now starting to focus on other development land (‘suelos con gestión de desarrollo previo’), according to findings from CBRE in its latest report Market View Residencial. The lack of property developments to meet future demand is already a concern for the sector, and that perception has only increased since the change in the municipal government, given that the brakes seem to have been put on several projects: Chamartín, Mahou-Calderon and Canalejas.

According to Servihabitat’s latest report about the residential sector, house sales will have increased by 25.6% by the end of this year, to total more than 400,000 operations. The entity expects the rising trend to continue in 2016, with more than 460,000 house sales, up by 14.5%. As a result, it expects house prices to rise by 2.6% this year and by 6% in 2016. All of the experts agree that the lack of land will end up impacting house prices.

In the centre of the capital, large one-off operations continue to abound, such as the ones closed last year by Domo Gestora, which acquired a plot of land on Raimundo Fernández Villaverde for €111 million; and Ibosa, which was awarded the former Metro depot in Cuatro Caminos. Another highly anticipated operation is the sale of a plot of land on Calle Padre Damián, 52, owned by the Ministry for Foreign Affairs, measuring 15,000 m2, where 200 homes are going to be built. The auction date has not been set yet, but Domo, Larcovi (with Ruiz-Larrea Architects), Comunidades Santa Gema, and the strong partnership between Los Jardines and El Olivar, have created four cooperatives interested in this plot worth around €100 million.

In terms of other future projects, within the M-30 radius, all eyes are focused on Operación Chamartín (17,500 homes), Operación Campamento (10,700 homes) and the smallest project of all Operación Calderón (2,000 homes). For Samuel Población, National Director of Residential Property and Land at CBRE, all three are very interesting projects and, in his opinion, Chamartín is the most necessary. “It will be the vertebral axis between the Castellana and the developments in the North, it has the blessing of the owners and it will take almost 20 years to complete. It doesn’t make any sense, either commercially or development wise, to delay it any longer”. However, the new mayoress of Madrid considers that this urban planning project cannot be resolved “in two months” and has said that no decision will be taken until after the general elections. This uncertainty, which will exist until the final version of the General Plan for Madrid is reviewed and the new Town Hall’s plans are presented in more detail, is not good for the sector, at a time when real estate investment has shot up by 51%, says Samuel Población, who also points out that, the project now known as Distrito Castellana Norte is planned in several phases, which means that its launch is not incompatible with subsequent adjustments.

Scarcity on the horizon

The lack of supply has been felt most notably in the PAUs (‘Proyectos de Arquitectura y Urbanismo’ or Architecture and Urban Planning Projects)  in the north of Madrid: Sanchinarro, Las Tablas, Montecarmelo and Arroyofresno; and is starting to become apparent in Valdebebas. Currently, around 5,000 homes (unsubsidised and subsidised) have been delivered or are about to be in that development alone, out of a total projected number of 13,500. The Junta de Compensación is selling new plots for the construction of social housing, with plans for 1,000 subsidised homes to be built; after that, the supply of protected land in Valdebebas will have run dry.

In the south of the city, the Ensanche de Vallecas area is also showing signs of the shortage: in 2007, there were almost 3,000 homes for sale there, and now there are just 150.

In the southeast, other important developments are planned, such as Valdecarros (48,000 homes), Los Ahijones (15,400 homes) and el Cañaveral (15,000 homes), however there is not yet sufficient demand in those areas to match the vast supply.

Madrid’s residential market is a very polarised and so, despite the fact that there appears to be stock, there are pockets where scarcity is just around the corner.

Luis Corral, the CEO of Foro Consultores, reminds us that  improvisation does not work in the housing sector: “To develop homes, land needs to be created and that takes time, which means developers need to have developable land in their portfolios”.

Original story: Expansión Special ‘Casas’ Supplement (Loreta Ruiz-Ocaña)

Translation: Carmel Drake

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