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Spanish House-Building Awakening After Seven Years of Hibernation

17/12/2014 – Invertia

On a busy street in the heart of Madrid, Juan Jose Perucho shows where he is going to raise one of the tallest residential blocks seen in the capital, on a piece of land equal to five-times the size of a football pitch area which he bought from Madrid’s subway in November.

‘We have sold-out the developement faster than ever’, said the chief executive of real estate firm Ibosa referring to a 25-storey tower with a swimming pool and hanging gardens. ‘I have never seen anything like that during my 24 years in the business’.

The country, where the view of working cranes has been a daily bread for decades, shakily starts to take steps towards the activity after seven tough years which came after the real estate bubble burst.

In the three months from June to September, residential construction has registered its first quarterly rise since the recession began.

But while data proves growing confidence of Spaniards in their economy faring better, experts agree the odds are low for the activity to go back to the pre-crisis level.

Today’s c0nstruction in Spain accounts for 5% of its GDP, or 50 billion euros, compared to the 10% share the industry had during the real estate boom.

Also, the sector employs nearly a half less than before the market crashed in 2008, showing no projections for an abrupt rebound.

At the heights of its building frenzy, Spain was raising more dwellings annually than Germany, France and Italy altogether. The activity has left a stock of 740.000 unsold new homes, with no prompt outlook for their absorption as many of them are located out of big cities, in areas like Guadalajara or La Rioja, where demand is difficult to detect.

Spanish banks, with 161 million euros in loans to builders, many of them troublesome, have pushed new lending cautiousness to the limits, approving exclusively upmarket developments in Madrid and Barcelona, where prices slightly started to rise.

Moreover, developers have to have at least 50% of apartments sold off-plan before the financing agreements are sealed. Also, they must pay for the land out of their own pockets and put around half of the building costs, too, said banking sources.

But even with the strict lending conditions, so much different from the construction bonanza decade when even a small bricklayer could enjoy unlimited financing from banks, there are more projects than last year, especially in regard to Madrid and Barcelona.

From January to October, the City Hall of Madrid gave out 3.131 permits for new residential construction, more than it granded during the entirety of 2013.

Another property manager, Domo, is planning to construct a new block of apartments on a plot located in exclusive Chamberi neighbourhood and acquired from the Ministry of Defense in November.

The banks, seeing their margins dipping down and selective when it comes to elegible customers, bet on high-end homes as a way of capturing wealthy customers who could be subsequently offered other products.

Although 80% of Spaniards own their houses, a double of the eurozone average, new mortgage amount has declined by one-tenth if compared to 127.233 real estate loans ceded in March 2006.

‘One of the biggest motivations to finance developers again is to capture mortgage holders’, said Joan Bertran, director of real estate investment at Banco Sabadell.

As a year ago the bank would sniff at loan applications for property developement, today the executive and his team are weighting up 150 of them. Already approved are eight new investments in Madrid and a similar amount in Barcelona.

Coming back to the former Metro plot where Madrid’s tallest residential tower is going to stand on, Mr Perucho obtained financing from CaixaBank. The developer claims that most of the buyers are Spanish and they treat the properties as places to live in, not to invest in.

Mr Perucho explained that noteworthy is the percetage of the Spaniards who currently work abroad at very well-paid positions, as a prove of specialists helping the country to crawl out from the recession.

In these extremely selective circumstances when thousands of apartments remain unsold for years, the most savvy real estate firms brace for biddings of other developable lots in large cities showing significant interest, like the spot currently occupied by the Atletico de Madrid football club’s stadium located at a bank of the Manzanares River.

‘It is a return to relatively normal activity, and not a boom at all’, Mr Perucho said. ‘The market has been absolutely inactive for seven years and there comes the unleashed demand’.

 

Original story: Invertia (after: Reuters, by Sonya Dowsett)

Translation: AURA REE