IESE: Demand For New Homes In Madrid Will Reach 20,000 In 2019

2 June 2015 – El Mundo

At a conference organised by the College of Civil Engineers before the local elections, Manuela Carmena, who will become the mayoress of the capital provided Esperanza Aguirre does not stand in her way, ruled out Operación Chamartín as a significant objective: “I do not think that we need 17,500 homes, we will talk about that again in 2017 or 2018, but not now”.

Her comments are interesting because just a few days later, professor José Luis Suárez, of IESE, has claimed that, during 2015 and 2016, demand for new housing in the metropolitan area of Madrid will reach 14,000 units and in 2017 alone, it will reach 13,000. Suárez is one of the foremost experts in the Spanish real estate market and during the annual symposium of the Center for International Finance (CIF), he presented the preliminary results of a study about the evolution of demand for new homes in Spain until 2028.

Suárez and his team of researchers are building a model to allow them to predict the demand for new homes in nine large Spanish urban areas. The model is driven by several factors, including the reduction in the number of people per household; financing; the rate of obsolescence of homes in use; the demand for replacement; the acquisition of second homes; employment; investment in housing; the preference for new housing; renovations; the declining population; the over-stock of housing; and rentals.

Although Spain’s “demographic winter” may lead us to expect a decrease in the number of homes, as well as in their average size, the calculations performed by Suárez for the Madrid area show that demand for new homes will reach 20,000 units in 2019. This quantity would mean demand returning to the levels last seen in 2009-2010, years when the trend lines between the purchase of new homes and the supply of new homes intersected. At the height of the bubble, in 2006, more than 40,000 new homes were sold in Madrid and during that same year, more than 60,000 units were constructed.

In fact, the excess stock of housing in Madrid is practically non-existent now. There is still excess supply in Spain, but not in places where demand is high.

Urban planning is one of the areas that the local politicians enjoy the most and where Carmena is undertaking a detailed program. She is committed to renovating and supporting operations in deprived neighbourhoods, such as the so called Operación Campamento, which is sponsored by Chinese capital. Although critics accuse the plans of being neoliberal since they serve individual interests, the fact is that urban planning is anti-liberal by definition and is fertile territory for commercialism.

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Original story: El Mundo (by John Müller)

Translation: Carmel Drake

Now Is The Time To Invest In Housing

11 May 2015 – Expansión

The real estate sector is taking off / The real estate sector is becoming more attractive for investment purposes. Now is the time to buy, above all in the exclusive neighbourhoods of the large cities and in certain areas along the coast. Renting generates good returns.

Real estate investment is gaining lustre. Increasingly, experts are saying that the market has bottomed out and now is the time to buy.

House prices, which fell by 50% on average from (the heights of) the property boom, are experiencing a clear process of stabilisation and are now showing signs of gains in some places. The valuation company Tinsa highlights that Barcelona, Palma de Mallorca, Málaga and Burgos are the cities that experienced the highest inter-annual price increases during the first quarter, of between 0.1% and 5.4%. On average, prices rose by 3.3% during the first quarter, according to Sociedad de Tasación, reflecting even more optimistic data.

But beware, the experts warn that although investment opportunities exist, not all investments are good – many homes are still valued above market price. Nevertheless, in the most sought after areas, waiting to buy could be a mistake, since homes will be more expensive and there will be more people interested in making bids for them.

Location is key. The most profitable areas to invest in are the best areas of the large cities, especially Madrid and Barcelona, as well as the most established coastal enclaves, such as the Costa del Sol. For example, the gross annual return on a 100m2 home in a prime area of Madrid is around 5.2%.

The banks have more than 150,000 properties to sell through their websites. The discounts (they are offering) are less aggressive than during the peak of the crisis and there is an extensive supply of holiday homes. The most pronounced reductions are located outside of the premium areas, but homes in those regions are more difficult to monetise.

Rental returns

One of the most recommended strategies at the moment is ‘buy to let’. According to the President of the Foundation for Real Estate Studies, Julio Gil, “buy to let is currently one of the best alternatives for small investors in terms of return and risk”. You can obtain an average return of 4.7%. In the case of retail premises, the return that you can obtain increases to 7%; for offices, it amounts to 6.4%; and for parking spaces, it averages 4.6%, according to a report from Idealista.

These returns are significantly higher than the 1.6% offered by a 10-year Spanish treasury bond. Meanwhile, according to the Bank of Spain, average returns on 12-month deposits are below 0.5%.

One of the elements that reflects the reactivation of the real estate market is mortgage lending. It increased by 1.6% in 2014 to reach 203,000 loans, whereby turning the tables on seven years of decline. The improvement was even more dramatic in February, with an increase of 29.2%. Nevertheless, the figure still falls well below the equilibrium point, which is 450,000 (mortgages) per year, according to Sociedad de Tasación.

The financial institutions are optimistic and say that new credit will increase this year. Analysts at Moody’s ratings agency agree. They consider that the increase in mortgage lending will improve demand in the real estate sector, which in turn may help to increase property prices.

The financial institutions have already launched (campaigns) to secure clients and obtain customer loyalty during this period of recovery. Most of the offers from the banks are variable rate products (mortgages). The best deals have spreads of between 1% and 1.75%. However, it is important not to focus on the differential alone, since in some cases opening and cancelation fees apply, whereas in other cases they do not. Moreover, each entity usually requires a minimum income, which varies from one to another (from between €500 to €5,000 per month). Furthermore, in almost all cases, the banks require borrowers to purchase other products such as insurance and pension plans or (to commit to a minimum) credit card spend. Meanwhile, interest rates on fixed rate mortgages vary from between 2.4% to 5.5%.

Original story: Expansión (by C. Rosique)

Translation: Carmel Drake

Final Sales At The Luxury ‘La Zagaleta’ Development

23 February 2015 – El Mundo

An agreement has been reached between the complex owner and investors to launch new properties.

Property prices in this development range between €1 million and €16 million.

Potential buyers enjoy the minimum legal IBI rate in this precious enclave.

“Few residential developments offer such a high level of exclusivity in Spain”.

Luxury, exclusivity and virtually airtight privacy. Those are the characteristics of the homes in La Zagaleta, a genuine Marbellan development only a few buyers can afford, which has successfully avoided the punches thrown by the crisis. Today, the supply of newly built properties has been exhausted and so to gain access to the urbanisation, buyers have to resort to the resale market for the contemporary properties.

However, to satisfy the booming demand for La Zagaleta, new investors have arrived in the precious residential complex and they have reached an agreement with the owners of the urbanisation to market and promote more than twenty plots. “We are designing a strategic plan that will allow us to jointly launch five or six high-end villas in 2016”, announced Sergio Azcona, Press Director at La Zagaleta.

This agreement paints a very encouraging picture for the enclave, since it will ensure a constant supply in the area and will maintain the highest standards of quality. “This is good news for the market, which is experiencing a relative scarcity of new, high-end properties and whose supply mainly comprises traditional, older houses, which normally need refurbishing”, added Stephen Lahiri, Director of Lucas Fox’s office in Marbella. The real estate company has recently completed two of the most significant sales in the area for €7 million and €12 million, respectively.

“Few urbanisations offer such a high level of exclusivity in Spain”, said Lahiri. The properties in La Zagaleta meet the highest standards in terms of construction, architecture and security, which is extremely appealing and therefore results in high demand. For the most part, the price of the houses marketed by Lucas Fox comfortably exceeds one million euros and sometimes can reach up to €16 million. As well as these characteristics, the low construction density over the 900-hectare plot is another appealing feature, which means that the homes are surrounded by lush vegetation and enjoy views of the Mediterranean, Gibraltar and Africa.

“We have two 18-hole golf courses and we offer a personalised service with a team of 120 multilingual professionals who meet the needs of clients 24 hours a day”, said Azcona.

Buyers are aged between 40 and 50

The local real estate companies have noted an increase in the number of requests (for properties) in the Marbella area, where the volume of transactions is again close to its 2007 levels. Moreover, there has been a change in the demographic: buyers are generally younger than they were at the start of the Noughties, with the average age now ranging between 40 and 50 years.

(….)

“In terms of the method of payment for the properties, given the current difficulties involved in financing a real estate transaction, more and more clients are choosing to buy without taking out a mortgage”, said Lahiri. Therefore “it is no surprise that prices have returned to more realistic figures as buyers return (to the market)”. “Above all”, he adds “in areas considered to be the best in Europe for living and owning a luxury property”.

Favourable Tax (Conditions)

The potential buyers in La Zagaleta cannot ignore the great appeal of the tax rate, since in this urbanisation – just like in many other towns in the area – the Property Ownership Tax (Impuesto sobre Bienes Inmuebles or IBI) rate is at its legal minimum, something which “along with its special location has meant that (the development) has barely suffered during the crisis”, concludes Azcona, who states that “the indicators suggest that values, and therefore prices, are going to be updated in the short and medium term”.

Original story: El Mundo (by Pablo Ramos)

Translation: Carmel Drake

Housing: 319,389 Homes Were Sold In 2014, Up By 2.2%

11 February 2015 – Expansión

After three years in decline, INE confirms that the residential sector is on the road to recovery. The greater increases in the number of transactions were recorded in the Balearic Islands (18.5%), Navarra (13.9%) and the Canary Islands (12%).

The National Institute of Statistics (el Instituto Nacional de Estadística or INE) confirmed yesterday that house sales have turned the corner around Cape Horn. The crisis is not behind us yet, by any means, but the sector has begun its long road to recovery, and that is the best news to come out of the property sector in over six years. Residential property transactions increased by 2.2% in 2014.

Last year, 319,389 homes were sold, compared with 312,600 in 2013 and 318,534 in 2012. This represented the first annual statistical increase since 2010, although that year was clearly affected by the termination of the tax relief for first home purchases for individuals earning more than €24,107, which caused numerous families to bring forward their house purchases so as not to miss out on the tax incentive of up to €1,350 per year.

“The year-end figure reflects a rise that, although timid, is a symptom of a significant change in the pace of operations. It is an encouraging piece of data that emphasises the stabilisation of the sector and it is based on the return of financial institutions to the field of finance and on the price adjustments undergone in the market”, said Manuel Gandarias, Head of Research at pisos.com.

In reality, 2014 was the first year since 2007 in which demand grew by itself, without tax incentives or other decisive policies. The worst years of the crisis for the property sector were 2008 and 2009, when residential sales decreased by -28.8% and -25.1%, respectively. In 2010, sales increased by 6.3%. The decline then slowed down gradually in 2011 (-18.1%), 2012 (-11.5%) and 2013 (-1.9%, when tax relief ended completely).

The expected upturn in purchases in due solely and exclusively to the strong sentiment in the second hand market, the real thermometer of the residential sector at a time when new homes are still somewhat mummified, in an over-inflated stock.

Sales of used homes increased to 199,943 in 2014, i.e. 18.4% more than a year earlier. Second hand homes now account for two out of every three transactions (62.6% of the total). These sales had increased by 3.8% in 2013.

Meanwhile, sales of new homes in 2014 amounted to 119,446 (down -6.9% with respect to 2013) and now accumulate four consecutive years of decline.

“This superiority of used homes over new builds is not only based on the larger volume and leeway afforded by the prices of such homes, it is also due to the scarcity of new developments and the effect caused when the banks dumped the new developments they held on their balance sheets, which effectively converted these properties into second hand homes for tax purposes”, said Gandarias.

The number of unsubsidised homes sold increased by 3.2% with respect to 2013, whilst the number of subsidised house sales decreased by 6.2%.

By autonomous region

The autonomous communities that experienced the greatest increases in the number of house sales in 2014 were the Balearic Islands (18.5%), Navarra (13.9%) and the Canary Islands (12%). The largest decreases were recorded in La Rioja (-25.1%), Castilla-La Mancha (-12.6%) and Murcia (-6.3%).

The regions that recorded the most transactions per 100,000 inhabitants in 2014 were Valencia (1,182), the Balearic Islands (1,043) and the Canary Islands (1,015).

83.0% of the sales recorded in 2014 related to urban properties and 17% to rural properties. In the case of urban properties, 55% corresponded to homes. Sales of rural properties increased by 7.3% and sales of urban properties rose by 0.9%. Within this second group, housing was the property type that experienced the highest growth.

The experts expect the improvement in house sales to extend into 2015. The 21st Edition of the Real Estate Heart Rate Monitor (la XXI edición del Pulsímetro Inmobiliario) published by the Institute of Business Practices (el Instituto de Práctica Empresarial or IPE) last week, forecasts that sales will grow by 7.5% this year.

According to the IPE, house prices will grow by 2.5% in 2015. In addition, mortgage lending will increase by 2.5% and the construction of new builds will grow by 7.5%.

Sales have already increased. Will prices rise too? We will know on 9 March, when INE publishes data abour the average house price at the end of 2014.

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

Lone Star Acquires Neinor And Real Estate Assets From Kutxabank

15 December 2014 – The Corner

The purchase of large swathes of Spanish land by US hedge fund Lone Star is further compelling evidence that the Spanish property market is staging a recovery. This investment signifies that the improvement in the market will soon be seen in the residential sector, having previously been confined to the retail and commercial markets.

Earlier this month, Lone Star bought the property management arm Neinor from the Spanish lender Kutxabank, as well as around half of the bank’s real estate assets for €930 million.

Original story: The Corner

Edited by: Carmel Drake