Property Developers Search For Buildings To Refurbish

3 May 2016 – Cinco Días

For the third year in a row, 2015 closed with an increase in the number of building permits, although the level of housing construction is still a long way below that recorded at the height of the boom. So great is demand in places like Madrid that investors/property developers are now allocating almost one out of every five euros to the acquisition of buildings in the centre of the capital for renovation and whereby bringing more new homes onto the market in prime areas.

The slight slowdown in construction detected by the Bank of Spain during the first quarter of the year does not seem to be affect real estate activity that much, but does affect other sub-sectors. In fact, the main market indicators show how the pull of demand for housing is continuing to strengthen and how that has driven the launch of new developments. Above all in places where most of the stock has now been absorbed and there is none left, or the surplus that remains unsold does not match what buyers are looking for.

A recent study compiled by the consultancy firm Knight Frank also shows how the recovery in housing has reduced auto-promotion, or the construction of homes by cooperatives, in favour of traditional property developers by 8%, and the banks have played an important role in the phenomenon as they have started to finance the most solvent developers with the most robust projects once again.

Nevertheless, although it might seem like the real estate business has returned to the high road once again, the fact is that the recovery has only fully arrived in certain, very specific enclaves and one of them is Madrid, and it has done so in a nuanced way and at different speeds.

“Madrid is the most sought-after area for investors in search of residential products, specifically, it receives 19% of all real estate investment. Andalucía, Valencia and Cataluña are the following most popular autonomous regions, accounting for 16%, 15% and 14% of total investment, respectively” says the report. (…).

And, in the meantime, the appetite to buy homes in the prime areas of the major cities is such that investors and property developers are starting to opt mainly to buy buildings that need refurbishing in the centre of cities, to then bring new homes onto the market that better suit the demands of buyers. In 2015, investment in entire buildings accounted for 19% of the total, whilst land purchases represented 81%.

Type of home

(…). In general, the typical buyer profile nowadays is a family with medium to medium-high purchasing power, looking for a home to reposition or improve the one they currently own “in locations with services, transport, urbanisations with common areas and quality in the design of the materials and finishes”. Thus, the most sought-after product is now a three-bedroom house, with an average price of between €230,000 and €450,000.

Does the market in Madrid offer that product in sufficient quantity so as to not generate perverse tensions in terms of prices? The conclusion of the study by the aforementioned consultancy firm is….that the supply is still insufficient. The municipality of Madrid has around 3,000 new homes registered as available. Only 30% of those are located inside the M-30, where the scarcity of land is most acute and prices are highest. 20% are located in the area between the two main ring roads (the M-30 and the M-40) and the remaining 50% are in the PAUs and new developments, some of which are located beyond the M-40. Demand for housing is distributed in a relatively similar way, which according to Knight Frank avoids major imbalances between supply and demand (…).

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

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