Spain’s Property Developers Glimpse the First Signs of a Moderation in Prices

29 May 2019 – Expansión

Yesterday, several of the largest property developers in Spain met for a Medcap roundtable event moderated by Deloitte to discuss the outlook for the residential market.

Specifically, representatives from Metrovacesa, Aedas, Quabit, Insur and Lar participated in the discussions, during which they observed that house prices in Spain are starting to moderate in some of the more mature markets, although they acknowledged that there are still many secondary cities where the new (growth) cycle is just beginning.

In this context, the representatives identified a number of focuses and challenges facing the sector, namely:

Licences: All of the property developers are pushing for great agility from the public administrations when it comes to the granting of construction permits.

Construction: The labour shortage in the construction sector is pushing up prices and leading to delays in project finishes.

Concentration: Property developers are larger and more professionalised now than before the crisis; they require critical mass to be resilient to real estate cycles.

Industrialisation: Prefabricated homes allow construction periods to be shortened and for greater control over the processes.

Access: Young people are finding it increasingly difficult to afford to buy a home.

Overall, the experts consider that the residential sector is still immersed in the early stages of the new cycle, but only time will tell whether they are right.

Original story: Expansión (by Rebeca Arroyo)

Translation/Summary: Carmel Drake

Axis: Spain’s Banks Have €31.7bn in Toxic Assets Up For Sale

15 March 2018 – Eje Prime

After a 2017 in which one of the key characteristics of the residential market was the interest from funds in going to banks for property, this year, the trend is set to increase. The investment funds are now being joined by Socimis, which want to take advantage of the rapid and generous divestments that the banks are undertaking of their real estate portfolios.

Pressure from the European Central Bank (ECB) for the financial entities to clean up their balance sheets has meant that they have been rushing, for the last year and a half, to sell almost all of their portfolios of assets and non-performing loans relating to the real estate sector. According to data from the consultancy firm Axis, the banks currently have €31.7 billion in toxic assets up for sale.

This large sum of portfolios up for sale is proving to be the subject of major battles between the main investment funds, the majority of which are international, and which in 2017 managed to close record operations in this sense. The sale by Santander of property inherited from Popular to Blackstone for €10 billion, and the agreement reached between BBVA and the fund Cerberus for €4 billion to transfer assets from the real estate firm Anida, fired the starting gun for a race that is going to reach its cruising speed this year, according to Cinco Días.

Spain is the third country in the Eurozone by volume of doubtful loans, with €136 billion and a default rate of 5.7%, a percentage that is above the European average of 5.1%. According to the Bank of Spain, non-performing loans held by the banks at the end of 2016 amounted to €190 billion.

The oligopoly of the servicers 

Axis details that the assets of the banks under the management of the servicers are no longer going to be a question of five, since some of the players may come out of the equation. In 2018, “there will be a greater concentration in the market, with the sale of some of the servicers”, according to the study.

Until now, 80% of the portfolios have been managed by the banks and funds, as demonstrated in the cases of Altamira, which is controlled by Banco Santander; Haya and Anida, companies that are both linked to Cerberus; Anticipa and Aliseda, which are both owned by Blackstone; and Servihabitat and Solvia, which are owned by CaixaBank and Banco Sabadell, respectively.

In addition to the aforementioned funds, Axis adds others with a presence in the Spanish market such as Lone Star, Oaktree, Deutsche Bank and Fortress, which will try to acquire one or more of the portfolios for sale.

Funds and Socimis are going to be searching to generate returns this year, above all, in the rental market, which with yields of 8% “is going to be the product with the most attractive investment prospects”, according to Axis.

Original story: Eje Prime

Translation: Carmel Drake

Deloitte: Residential Property Developers Set Their Sights on Consolidation

1 March 2018 – Expansión

The residential sector is on a roll. After years of significant declines in property development activity in Spain, the housing industry recorded its best year since the crisis in 2017, with a total of 500,000 transactions, of which almost 85,000 involved new homes, although the evolution of house sales is still light years away from the levels seen in 2007.

In this context, prices also recovered, recording an increase of 6.6% between 2014 and the third quarter of 2017, albeit with significant differences by province. This recovery in prices came after a cumulative decrease of 27.3% between 2008 and 2014, according to data reflected by Deloitte in its report The Residential Development Handbook. According to that analysis, there are currently 2,150 developments underway, with 114,000 homes being built. Of the total new developments, almost 80% are located in just 10 provinces.

This recovery is happening in the context of a favourable macroeconomic evolution with GDP growth of 3.1% in 2017, a reduction in unemployment and a favourable demographic makeup: Spain has 21 million citizens aged between 25 and 55 years, who may become potential buyers.

Moreover, financing is working in favour of house sales as the banks have opened the credit tap once again, although with greater demands on borrowers and more rigorous controls.

Alberto Valls, Partner responsible for Real Estate at Deloitte, explains that there is “growing unmet demand, which extends beyond the 10 main provinces”. In this sense, sources at the Deloitte have identified 272 hotspots where both demand and prices are growing, unemployment is decreasing and the market dynamics are favourable. “One third of those hotspots are not being covered by any property developers”, explains Gonzalo Gallego, Partner at Deloitte in the Financial Advisory Real Estate team.

These hotspots are located in 158 areas of the country. Specifically, Madrid and Barcelona account for more than 35% of them. In this context, funds such as Castlelake, Cerberus, Blackstone and Värde saw an opportunity in the wake of the recovery and have set up shop in the country. Others, such as Lone Star, have already completed their cycles, and with the sale of its entire stake in Neinor, which has been listed for less than a year, has collected its gains.

For Valls, the Spanish market continues to offer opportunities for investors to create value. “They are continuing to invest through alternative structures: alliances in projects, purchases of property developers and development of platforms for their subsequent debuts on the stock market”, he says.

The Partner responsible for Real Estate at Deloitte also recalls that, despite the creation of new players, the residential market in Spain is “highly fragmented”. And he predicts: “The market for real estate property developers is going to become more concentrated”.

Specifically, the five largest property developers in Spain account for just 6% of the market in terms of units handed over and 12% of the units under development. If we compare those figures with other more mature markets, the Top 5 British property developers account for 39% of the total units handed over, whilst the top five French developers account for 42%, according to data from Deloitte.

Large listed companies

Placing the focus on the large listed property developers, Metrovacesa, Aedas and Neinor, which have a combined stock market capitalisation of €5.2 billion, together, they own a portfolio of land with capacity for the development of 61,500 homes. Their French counterparts Nexity and Kaufman Broad, which have a combined market value of €3.3 billion, own land for the development of 72,100 homes. Meanwhile, the eight largest property developers in the UK, including Persimmon, Taylor Wimpey and Barratt, which have a combined market capitalisation of €37 billion, have potential land for around 300,000 homes.

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake