As House Sales Rise & Stocks Fall, Should We Build More Homes?

3 June 2016 – Idealista

In 2016, the number of house sales is forecast to rise by 10% to 440,000 operations, almost 40,000 more than last year. This increase in the volume of transactions is also expected to result in a 25% reduction in the stock of unsold new homes, without exerting excessive pressure on house prices, which are predicted to rise by 3.8%. That is the outlook described by Servihabitat for the next few months. (…).

In this vein, the number of unsold new homes has been gradually decreasing in recent years. According to Servihabitat, the stock will decrease by 125,000 properties during 2016, to 367,500, which represents a decrease of 25% compared with 2015. By contrast, construction of 44,600 homes will be started this year and another 50,800 residential properties will be finished.

The statistics have opened a debate over whether the rate of residential construction should be increased or not. Like everything in this life, it depends. The post-crisis real estate market is moving at double speed and, whilst in some places everything that is being built is being sold; in other areas, there is barely any demand and there is a huge stock of homes constructed during the boom years, for which there are no buyers.

“The reduction in stock is not uniform across the country. The major cities have experienced a gradual reduction in the number of homes up for sale to reach the so-called technical stock”, explained Juan Carlos Álvarez, Director General of the Real Estate Business at Servihabitat.

That means that in the autonomous regions of Madrid and Cataluña, the difference between finished homes and new homes sold amounts to a balanced figure of 1,000 units. The forecasts show that the stock of new homes in Madrid will decrease by 64.2% this year, to 4,792 homes. In the case of Cataluña, the reduction will amount to 23.3%, leaving 10,553 recently constructed homes.

There is little doubt that in certain areas of the major capitals, everything that is being built is being sold. “Nevertheless, that is not happening in the metropolitan areas or peripheral towns. There is still an abundant stock in some areas that will be difficult to get rid of, given that current and potential demand is not looking for new homes in those areas”, says Álvarez.

For that reason, we need to differentiate between pre-crisis stock – which is generally poorly located, has little demand and is very difficult to sell – and the post-crisis stock, which is better placed and has better sales prospects. (…).

The problem of uncertainty

Although the data is positive and, according to Julián Cabanillas, “the current political uncertainty is not affecting the sector”, the CEO of Servihabitat identifies a problem that may weigh down on the good performance of the real estate market, “which is the sensitivity to the legal uncertainty that results from the lack of homogeneity in decision making by local and regional governments, which affects investors’ interest in real estate. (…).

Sources in the sector say that since the new government arrived in the Town Hall of Madrid, the time it takes to obtain the necessary permits to begin construction of housing developments has doubled “from four months to eight”, which represents a huge cost for property developers and which inevitably impacts the final price of homes.

Servihabitat is calling for the different authorities to employ “greater balance in the protection of the rights and duties of all agents in the market and a greater balance in terms of decision making”.

Original story: Idealista (by David Marrero)

Translation: Carmel Drake

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