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

Arcano Buys EFE’s Former HQ in Chamberí to Build Luxury Homes

1 April 2019 – El Confidencial

Arcano has just acquired the property at number 32 Calle Espronceda in Madrid, which previously housed the EFE Agency for several decades.

The firm’s new real estate fund has just purchased the building, which spans 8,000 m2, for more than €40 million from the fund Eurostone, where it plans to promote 50 luxury homes. The property is distributed over seven floors and has more than 200 parking spaces. Moreover, it has already been granted all of the licences necessary for the redevelopment work.

The operation has been advised by Colliers, Doble Dígito and TC Gabinete Inmobiliario and partially financed by CaixaBank.

Original story: El Confidencial (by Ruth Ugalde)

Translation/Summary: Carmel Drake

Ghost Towns Still Haunt Spain in Property Rebound a Decade After

25 November 2018 – Bloomberg

Juan Velayos’s biggest headache these days is getting licenses fast enough to hand over new homes such as the upscale condos his company is building in the northern suburbs of Madrid.

Less than 60 miles away, Ricardo Alba’s neighborhood tells a different story about Spain’s property market. The fencing instructor is one of only two occupants at a block of apartments whose development was frozen in its tracks when banks pulled the plug on credit.

“The real estate sector’s recovery in Spain is developing at two clearly different speeds,” said Fernando Rodriguez de Acuna, director of Madrid-based real-estate consultancy R.R. de Acuna & Asociados. “While one part of the country is consolidating the recovery of the sector and even expanding, another part of the country is stagnating and is showing few signs of returning to pre-crisis levels in the medium- and long-term.”

A decade after the financial crisis hit, Spain’s real estate recovery is a tale of two markets. Key cities and tourism hot spots are enjoying a fresh boom, fueled by interest rates that are still near historic lows, an economic recovery and a banking system that’s finally cleaning up its act. Private equity firms such as Blackstone Group LP are picking up once-toxic assets worth tens of billions of dollars and parsing out what’s still of value, often using their playbook from the U.S. real estate recovery to convert properties into rentals.

But travel a little beyond the bustling centers, to the outskirts of smaller villages, and ghost towns still litter the landscape — once ambitious developments, often started on agricultural land that was converted into building lots just before the crisis hit. They still stand half-finished, unable to find a buyer.

The “Bioclimatic City La Encina” where Alba began renting an apartment two months ago is one such development. Situated on the edge of the village of Bernuy de Porreros, about 10 kilometers (6 miles) from Segovia, it promised to be Spain’s first environmentally-friendly town, providing solar energy and recycled water for 267 homes, comprised of two-, three-, and four-bedroom chalets and apartments. A faded billboard speaks of the dreams that were sold, including communal swimming pools and gardens for residents who would “live… naturally.”

Today, only about a dozen of the homes are occupied. One street has finished homes but half have their windows bricked up to discourage break-ins, locals said. Alba does have solar panels heating his water, but his electricity comes from the local network. On the far side of the development, trees sprout out of the middle of a street that was never paved. Brightly-colored pipes and cables protrude from the ground. Bags of plaster on a pallet have long hardened.

Spain’s housing crash was fueled by a speculative frenzy combined with loose restrictions and corruption that allowed plots of farmland in rural villages to be converted to feed a demand for homes that never truly existed, said Velayos, who is chief executive officer of Neinor Homes. At the height of the boom in 2006, authorities approved 865,561 new home licenses when even in an economic boom demand is no greater than 250,000 homes, he says.

Banks were handing out loans to developers who had little to lose if a project didn’t find a buyer because the money wasn’t theirs. The result was an almost total collapse of the market and close to $200 billion of soured assets.

About half of them were bought in 2012 by Sareb, a bad bank set up by the government to help lenders. Sareb spent about 50 billion euros to acquire assets that were once valued at twice that amount, mostly loans to developers and real estate. Among the latter are also 97 of the 267 properties at La Encina. None of them are currently for sale as Sareb works through legal issues and construction of many isn’t finished.

Other assets were picked up by deep-pocketed investors such as Blackstone, which has 25 billion euros invested in Spain, according to Claudio Boada, a senior adviser at the firm. The New York-based company — the world’s largest private markets investor — is doing what it did at home after the financial crisis: renting out homes instead of selling them in a bid that fewer people can afford to own. Spain had a relatively high home ownership rate before the crisis but it has since come down.

Blackstone’s Bet

“We’re holding most of what we own and looking to rent it out for the foreseeable future,” said James Seppala, head of real estate for Europe at Blackstone. “There’s a meaningful increase in demand for rental residential around the world, including in Spain, driven by home ownership rates coming down.”

Private equity investors also backed a new breed of real estate developers that are bringing a different rigor to the industry. Companies such as Neinor and Aedas Homes S.A.U. are more tech-savvy when assessing markets, and emphasize industrial production techniques to improve efficiency. They’re behind a surge in licenses for new homes to 12,172 new homes in July, the highest monthly total in a decade.

But demand is uneven: Madrid is enjoying its most robust year of home construction since 2008 with an average of 2,151 licenses awarded per month in the first seven months of the year. In Segovia, just 27 minutes from Madrid on the state-run bullet train, an average of 25 homes licenses have been approved per month in 2018, compared with an average of 180 homes a decade earlier.

The volume of residential mortgages sold in Spain peaked in late 2005 before hitting a low in 2013. Since then they have gradually picked up, with 28,755 sold in August, a seven percent annual increase.

Velayos, chief executive officer at Neinor, said business is starting to pick up beyond Madrid and Barcelona to smaller cities and the coast. His company plans to hand over 4,000 homes by 2021, more than 12 times as many as in 2017. The biggest challenge has been getting licenses approved on time. Velayos had to cut his delivery target for 2019 by a third as often understaffed local councils cause bottlenecks in the production process.

More significantly, Spain’s real estate is now funded by investor’s equity and not credit, said Velayos. Neinor was bought by private equity firm Lonestar Capital Management LLC from Kutxabank SA in 2014 and went public in March 2017. Aedas is backed by Castlelake, another private equity investor, and was floated the same year. Metrovacesa SA, owned by Spain’s biggest banks, held an initial public offering earlier this year.

Shares of all three developers have declined this year at more than twice the rate of the local stock index, a reminder that the market’s recovery remains fragile, with higher interest rates and an economic slowdown on the horizon.

For the Bioclimatic City La Encina, that means it may take longer still until Alba gets new neighbors. Prices for half-finished chalets were slashed by half, according to residents. Some now sell for as little as 16,700 euros, half the cost of a mid-range car.

Alba doubts such cuts will lure buyers. Then again, that may not be a bad thing, he says in summing up the development’s advantages: “It’s very peaceful.”

Original story: Bloomberg (by Charlie Devereux)

Edited by: Carmel Drake

Ministry of Development: Housing Permits Rose by 12% in August

2 November 2018 – Eje Prime

The residential sector is driving the new build segment in Spain. In August, a total of 1,620 permits were granted to build homes across the country, 7.8% more than during the same month in 2017. Of those, 1,389 were allocated to assets for residential use, which saw an increase of 12%, according to the latest data published by the Ministry of Development.

In August, the bulk of the new build permits granted for residential use were made for the construction of 1,387 family homes, specifically: 938 detached single-family units, 205 terraced single-family units and 244 flats in apartment blocks.

So far this year, a total of 17,151 permits have been processed for the construction of residential use assets, up by 10.2% compared to the first eight months of 2017, when those types of permits amounted to 15,562.

Meanwhile, during the eighth month of 2017, 231 permits were granted for the construction of non-residential use buildings, down by 1.5% compared to the same period last year. In that caption, there were three new permits for the construction of offices, another 21 for the development of industrial spaces and 83 more for assets dedicated to commercial services and warehouses.

Licences and budgets also recover

In terms of the concession of licences, last Wednesday, the Ministry of Development published figures corresponding to May. According to the body, 4,449 new permits for residential buildings dedicated to family homes were registered during the fifth month of the year (1,606 single-family units and 2,843 multi-family units), down by 0.8% compared to the same period in 2017.

Similarly, the number of licences processed for rehabilitation works doubled in May in YoY terms, to reach 825 concessions. The budget dedicated to the execution of labour also rose during the fifth month of the year, up from €493,095 in 2017 to €4989,264 in 2018.

Original story: Eje Prime (by B. Seijo)

Translation: Carmel Drake

Ministry of Development: Spain Signed 60,000 New Home Permits in 2017

5 June 2018 – Eje Prime

Spain is still a long way from the dizzy heights of 2006, but its stock of housing is gradually recovering the colour it lost during the decade when the sun shone very little over the new build sector. Last year, 60,888 municipal licences were signed for the construction of new homes, which represents almost twice as many as the 31,213 permits that were granted five years ago, according to data from the Ministry of Development.

Moreover, in YoY terms, the increase in the number of licences for the construction of residential buildings was 6.5%, with even greater rises in certain autonomous regions, such as Cataluña, where the increase to November exceeded 50%.

Nevertheless, the region where most new homes are being built, Madrid, recorded a slight decline in 2017. Following a significant increase in the number of licences during the beginning of the new economic cycle, last year, that market for the construction of new homes lost speed with a decrease of 4.4%.

In total, in the Spanish capital and its surrounding area, 14,018 licences were signed last year for residential construction, a figure that doubles the number recorded in 2016, but which represents a decrease of more than 650 homes at a time when there is great demand from Spanish and international investors.

The recovery of the Madrilenian residential market is clearly understood in the increase in the number of licences for the construction of new homes experienced first between 2013 and 2015, and, more importantly, during 2016. Five years ago, 6,134 permits were signed in the central region, in an annus horribilis that followed a 2012 in which Madrid approved 17,000 licences. After that, 24 months of stabilisation in the segment with the registration of between 7,000 and 8,000 licences (in total) for new homes, proceeded a 2016 that doubled the figures with 7,500 administrative signings of contracts for residential development.

The shortage of land and the obstacles imposed by Town Halls such as Madrid’s (…) have led to a fall that is heating up the market and generating problems for the whole sector. Other autonomous regions, such as  Navarra, Aragón, Asturias and Murcia also recorded decreases in 2017, going against the tide (…) and once again showing signs that Spain is moving at two speeds in the residential sector.

Significant increases on the Mediterranean Coast 

The Mediterranean coast is proving to be the engine for new housing in Spain. Regions such as Cataluña, the Community of Valencia, the Balearic Islands and the Málagan section of the Costa del Sol are registering significant growth figures in terms of the number of licences granted for the construction of housing.

Cataluña is on a roll with the construction of homes, with an increase of 50% during the first ten months of last year. To November, 9,815 licences were signed and sources in the sector have said to Eje Prime that the forecast for the end of the year was 12,100 permits, up by 35% compared to 2016 (…).

Heading south, the Community of Valencia has developed in a similar way to the Catalan market over the last five years. It doubled its annual figures between 2013 and 2017, from 3,142 permits to 6,588, but the greatest increase came in 2016. In just twelve months, the Mediterranean region increased the number of licences from 4,712 to 6,540, up by 39%.

The markets in the Balearic Islands and Andalucía, where the Costa del Sol plays a prominent role, have also shown clear signs of improvement in recent years. On the islands, permits for new build almost tripled between 2015 and 2017 from 826 to 2,391 (…).

Meanwhile, in Andalucía, although the growth percentage was similar, the increase was calculated on a larger volume of homes. As one of the areas with the highest demand for new home permits, the region (…) closed 2017 with 12,363 licences. Just five years earlier, that figure barely exceeded 5,000 (…).

Original story: Eje Prime (by J. Izquierdo)

Translation: Carmel Drake

Neinor Homes Buys “Non-Finalist” Land for €194M

9 May 2018 – Expansión 

Despite recording losses of €8 million during the first quarter of the year, the property developer is maintaining its objective of closing the year in profit.

Neinor Homes closed the first quarter of the year flat in financial terms, with sales of €19 million and net losses of €7.9 million, but it is preparing to crank up the pace with the handover of 1,000 homes during the course of the year, primarily during the last six months, which will allow it to close the year in the black.

Moreover, in order to maintain the pace of deliveries from 2022 onwards, the firm has closed agreements to purchase “non-finalist land” (plots without building permits) for €194 million, on which it will be able to build 1,400 homes. “This land has very advanced planning in place and is without risk. The payment will only be made for these plots if all of the licences are granted within the planned timeframe”, explained Neinor.

These purchase agreements follow the €7.5 million invested in three finalist plots acquired during the first quarter of the year for another 120 homes. With these plots, the firm now owns a portfolio of land with capacity for 14,000 homes. In terms of Capex, Neinor is planning to spend €430 million on its construction projects, which implies 1% less than budgeted.

The property developer’s CEO, Juan Velayos (pictured above), says that this year is going to be “significant” in terms of revenues and he adds that, of the 1,000 home handovers scheduled for 2018, 90% have already been pre-sold. “The rest, which are the best units, will be sold once they have been handed over”, he said.

Pre-sales

Following the punishment from analysts in February, when Neinor announced a reduction in its delivery targets to 1,000 units in 2018 compared with 1,374 planned initially and to 2,000 in 2019 from 3,000 planned originally, the property developer now wants to reassure the market. It confirmed that the 31 developments that are going to be handed over in 2019 are already underway and have received their licences. “We have very high visibility over our revenues”, added the director. Specifically, Neinor’s order book includes almost 2,500 pre-sold homes, which corresponds to sales of around €828 million.

Velayos said that, with the projects underway, the company is going to reverse the weight of the different businesses and revenues will now be generated by the delivery of homes.

Neinor’s shares (…) ended trading yesterday down by 2.31% to €16 per share.

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake

Palma de Mallorca to Ban All Tourist Apartments From July

24 April 2018 – El País

From July onwards, homeowners in Palma, on the Balearic Island of Mallorca, will not be allowed to rent out their apartments to tourists. The capital of the popular Mediterranean destination has adopted a pioneering measure, which will see the definitive prohibition of tourist flats right across the city. The local government team – a leftist alliance between the Socialist Party (PSOE), the local group Més per Mallorca and the anti-austerity Podemos – has taken this decision after commissioning several studies on the matter, which revealed that the supply of unlicensed tourist flats increased by 50% between 2015 and 2017 to reach 20,000 beds across the city. In Palma, which is Spain’s eighth-largest city by population, only 645 properties used for short-term vacation rentals have proper licenses.

The government team will approve initial holiday rental zoning plans at a meeting on Thursday, which will then be subjected to public scrutiny before being put to a final vote at a council session in July. At that point, tourists seeking this kind of accommodation will no longer be allowed to rent apartments in multi-family residential housing. Instead, they will only be able to stay in detached, single-family homes, which are being left outside the ban. Yet even these properties will be off limits if they are located on protected rural land, near the airport, or in non-residential areas such as industrial estates.

The move follows a reform of tourism legislation by the regional parliament of the Balearic Islands in August last year. That reform banned vacation rentals in apartments but left it up to local authorities to decide which neighbourhoods to apply it in. In the end, the city of Palma has decided to consider the entire municipality a “single zone” and so the ban will apply in all parts of town. The decision is meant “to protect residents,” said mayor Antoni Noguera.

Studies commissioned by city officials show that 48% of tourist apartments are offered for seven to eight months of the year, meaning they are not available for long-term residential rentals. “There is a parallel between the evolution of vacation rentals and the rise in rental prices,” said José Hila, the local chief of city planning. Rent in Palma has soared by 40% in recent years, making it the second most expensive Spanish city after Barcelona for residents who rent.

“Tourist accommodation affects the makeup of buildings and neighbourhoods, and it also affects social harmony,” said Hila. A report by the Citizen Ombudsman’s Office shows a rise in the number of complaints filed by residents due to problems with tourists who use these apartments, typically related to noise. There were 42 complaints in 2014 and 192 in 2017.

Pioneering initiative

Mayor Noguera is convinced that this measure, which is pioneering in Spain, will set the standard to be followed by other cities. “Palma is a bold and decisive city. We have agreed this on the basis of the general interest, and we believe that it will create a trend in other cities when they see that finding a balance is key.” said the mayor. “All European cities are being transformed from one day to the next by this type of offer,” said planning chief Hila.

Currently, in the Balearic capital, there is a supply of around 11,000 tourist rental beds, of which 645 have licences, all for family homes. Before the new regional legislation was approved in August, the number of beds amounted to 20,000 but the high fines established by the law – of up to €400,000 – led to the withdrawal of adverts from users of many of the large platforms (…).

Original story: El País (by Lucía Bohórquez)

Translation: Carmel Drake

Forcadell: New Home Sales Rose by 28% in Barcelona in H2 2017

21 February 2018 – Eje Prime

Barcelona is growing with new homes, even though they are more expensive than they were five years ago. The Catalan capital is experiencing significant growth in the sale of new homes from its residential stock, despite the socio-political situation that has been rumbling along for several months. During the second half of 2017, the sector saw the number of new house sales grow by 28% in the province of Barcelona compared to the same period in 2016, according to a report from the real estate consultancy Forcadell.

In addition to transactions, the price of new homes and the number of developments also increased, although the consultancy indicates that the current supply of homes in this segment is still scarce in the city of Barcelona, due to the lack of space. The only land reserves left are located in the 22@ district and in Poblenou, “which makes an increase in building renovation activity very necessary in the Catalan capital. Currently, such activity only accounts for 3.5% of new residential developments”, according to Forcadell.

During the second half of the year, the report highlights the activity recorded in the months of July and November, with significant peaks in the number of new home sales: 717 and 607, respectively, according to data from the National Institute of Statistics (INE). In this sense, and given the lack of land in the Catalan capital, the Barcelona market is expanding towards its neighbouring municipalities, such as el Barcelonès, el Baix Llobregat and el Vallès Occidental.

Within the city of Barcelona, the district that had the largest supply of new build homes between June and December was Sarrià-Sant Gervasi, whilst Ciutat Vella and l’Eixample put the most renovated assets on the market. Prices in the capital grew by 2.7% in half-yearly terms, with an overall average price of €5,439/m2. In this area, Sant Andreu was the neighbourhood with the highest increase in prices; and for this year and next, Nou Barris is set to see the highest increases in the price of new homes, according to Forcadell. The overall trend for this year is also expected to be bullish.

Forecasts from the consultancy firm indicate that construction activity in Barcelona will continue to increase over the coming months, above all in the towns adjacent to the city. Nevertheless, the lack of buildable land and the delay in the granting of licences may water down the good times that the property development sector will enjoy from 2019 onwards.

Rental market – mismatch between supply and demand

The rental market, which has been so in vogue recently, suffered from an important mismatch between supply and demand for rental homes costing between €850 and €1,000. This situation has resulted from an increase in the interest from clients in the metropolitan area.

In terms of demand, Forcadell indicates that during the second half of the year (…) rental prices continued to rise.

In this way, the report from the consultancy firm places the average price of a rental home at €15.50/m2/month, up by 1.9% with respect to the same period in 2016. Ciutat Vella is the district that registered the highest rents in the Catalan capital, of €19/m2/month, but Forcadell estimates that the trend will stabilise in the city in 2018 (…).

Moreover, the sale of second-hand homes recorded a YoY increase of 5.1%, with 31,485 operations. According to Forcadell, l’Eixample was the district with the largest supply of homes in the second half of the year, followed by Sant Martí, Ciutat Vella and Sarrià-Sant Gervasi.

The sales prices of second-hand homes increased by 1.7% between the first and second halves of 2017, to record an increase of 6.8% with respect to the end of 2016. The average price paid for a home measuring 90 m2, with three or four bedrooms, in Barcelona was €2,952/m2.

Original story: Eje Prime 

Translation: Carmel Drake

Sonae Sierra Returns To Spain With €170M

19 October 2016 – Expansión

The real estate company owned by the Sonae group and the fund Sierra are going to invest in the Spanish market once again. The company, which already owns six shopping centres in Spain, and manages two more, has set itself the objective of investing at least €170 million in the country over the next five years. Of those, €115 million will be spent on the large luxury brand outlet that it is constructing in Málaga together with the US firm McArthurGlen.

“We have started to request the licences and we will begin construction at the beginning of 2017, with the aim of opening the centre in 2018”, said Alexandre Fernandes, Head of Investment for Europe. The remaining €65 million will be spent updating and expanding some of its existing shopping centres in the country. “We are not planning to sell any of our centres in Spain, but rather invest in them and look for opportunities to buy”, said Fernando Oliveira, CEO of Sonae Sierra.

In Spain, the company had decided to divest its least strategic assets. Nevertheless, its strategy has changed radically and Sonae Sierra is now focusing on growing in Spain. “The outlook has completely changed since the end of 2013, financing has returned and all of the brands want to expand their businesses”, said Oliveira.

Partnerships

In addition, the real estate company has decided to launch a new business line dedicated to the search for and management of co-investment commercial projects. “We see that international funds are expressing a lot of interest in investing in Spain, not only in shopping centres and high street premises (but also other assets). We think that there is a market for them and that we can help them with their investments and then continue with the management of those properties”, said Fernandes.

These joint companies, in which Sonae Sierra will hold a minority stake and will manage the acquired assets, will operate as Socimis, given that “that it the structure that is most attractive for investors due to the tax advantages”, say sources at the company. The first of these partnerships was closed in June, with the fund CBRE Global Investment Partners, with which it jointly purchased two shopping centres in Portgual and another one in Spain.

At the global level, the company aims to invest €2,300 million in the development of new real estate projects over the next five years and to continue growing its service offering to third parties.

Original story: Expansión (by Rocío Ruiz)

Translation: Carmel Drake

Núñez’s Complaint Against Colau’s Moratorium Deemed Admissible

7 October 2015 – Orbyt

The High Court of Justice in Cataluña has declared admissible a complaint filed by the construction company Núñez y Navarro against the Town Hall of Barcelona. Specifically, the company has denounced the moratorium that the municipal government team, led by the mayoress Ada Colau (pictured), approved at the beginning of the summer. The moratorium has resulted in the suspension of more than 40 hotel projects that were underway in the Catalan capital, for at least one year.

Núñez y Navarro, which has registered the complaint through one of its subsidiaries, is currently building a new hotel on Calle Rec Comtal, in the historical centre of the city. The Town Hall approved the project eight years ago, and given that it had already been granted the necessary permits and licences, the moratorium was not meant to affect it.

Nevertheless, at the beginning of the summer, the district counsellor of Ciutat Vella, Gala Pin, reported that an investigation had been opened to check whether there had been irregularities with the processing of the urban planning application. At that time, the municipal government did not rule out that the opening of this establishment could ultimately be suspended, in the event that it was able to prove that there had been malpractice in the rezoning of the site.

Overall balance

Yesterday, municipal sources refused to comment on the news that Núñez y Navarro’s complaint had been declared admissible. However, they did say was that the period (of two working months) during which companies affected by the moratorium are permitted to file complaints with the courts will come to an end shortly. Only then will the Town Hall provide an overall assessment of the impact of the measure.

The first consequences of Ada Colau’s moratorium have already been felt. At Deutsche Bank’s former headquarters, located on the corner of Avenida Diagonal and Paseo de Gracia, the existing building will no longer be demolished to construct a hotel, instead the property will be renovated and converted into luxury homes. By contrast, another iconic project will go ahead, namely the conversion of Torre Agbar into a luxury hotel to be operated by the US chain Hyatt.

Original story: Orbyt

Translation: Carmel Drake