Urban Land Shortage Shatters Property Developers’ Dreams

15 January 2018 – Eje Prime

There is not enough land in the city for so many opportunities. That is the complaint that is increasingly being heard amongst experts in the real estate sector and above all, amongst residential property developers in the country, who warn that this problem is starting to take on a more serious tone. Not in vain, in the midst of the economic recovery, in one of the most critical moments of the upwards cycle (that has given confidence back to the house-building sector), available buildable land is scarce.

Real estate specialists like Anna Gener, Director General in Barcelona of the consultancy Savills Aguirre Newman, warns that “the sector is heating up a lot”, due to the shortage of land, given that property developers “by definition, can only purchase buildable land”, according to comments made in a recent interview with Eje Prime. In the opinion of the Catalan executive, “it is starting to become a matter of urgency for the public administration to take sides and streamline the procedures because, in certain areas of Spain, there is a genuine need for new homes…(…)”.

Whilst making her comments, Gener may have had in mind regions such as Madrid, Barcelona and Málaga. All three provinces are experiencing high demand for housing and they accounted for more than 50% of the total investment in land in Spain in 2017, with €3.5 billion spent there on urban land purchases. That figure represents an increase of 19% in recent quarters in relation to the number of property developer operations formalised, according to the Solvia Market View report compiled by the Spanish servicer, which analyses the real estate brokerage situation in the country.

Over the last twelve months, property developers have strengthened their presence in the Spanish residential market, starring in 74% of transactions, supported in many cases by investment funds that hold stakes in them. That fact, together with the aforementioned lack of land supply, has resulted in a 6.2% YoY increase in land prices.

Newly created companies such as Neinor Homes, Aedas Homes, Vía Célere and Aelca have led the current boom in domestic housing with ambitious land purchase plans. Their residential projects have breathed life and confidence into an activity that had been in decline following the real estate bubble of not so long ago, but they have caused the market to become more expensive again due to the increased competition to acquire the limited supply of buildable land available in the most sought-after areas.

In terms of amounts, operations of this kind were closed with prices ranging between €500,000 and €10 million in 60% of cases, whilst 15% of transactions exceeded the €10 million threshold (…).

Generating buildable land: a new line of business for 2018

In the Community of Marid, for example, the most sought-after buildable urban land is that allocated for residential use, above even that allocated for logistics use. As the main market in Spain for the buying and selling of land, the Madrilenian case exemplifies the constraints that the residential sector will have to battle against in 2018.

Firstly, the report from Solvia indicates that property developers will have to leave the city in search of buildable land on the outskirts. Areas such as El Cañaveral and the Corredor de Henares were the most sought-after places last year by companies in the sector (…). There is hardly any land left inside the M-30 (…).

The same applies in Barcelona. Buildable land is scarce both in the Catalan capital, and in its surrounding metropolitan area, which is leading some property developers to return to investing in towns in the second ring of the city’s outskirts, such as Sabadell, Terrassa and Granollers, amongst others, according to the report from the servicer owned by Banco Sabadell (…).

For this reason, one of the challenges for property developers this year is going to be to attract demand to new provincial capitals and markets. On the national map, the Solvia Market View report highlights cities such as Jaén, Pamplona, Oviedo and Valladolid. Regardless of where, what is in no doubt, is that the search for and acquisition of land for house building will continue for the next few months.

Original story: Eje Prime (by Jabier Izquierdo)

Translation: Carmel Drake