Irea’s Warning: Carmena’s Policies Will Drive Up House Prices

29 March 2016 – El Economista

The shortage of land in Madrid and the blocks against several major urban development projects have brought a familiar face back to the Spanish capital, in the form of: speculation. This situation has not gone unnoticed by the opportunistic funds, who have unpacked their bags as they plan to stay in Spain for a while.

According to Mikel Echavarran, the CEO of the real estate consultancy Irea, “within a couple of years, we are going to have a serious problem in terms of the availability of good land in Madrid for the development of homes and, therefore, we can expect to see inflation”.

As well as the shortage of land, we are also seeing blocks imposed against most of the major urban planning developments in the capital. “These projects still require a push and the Town Hall is not up to the job”, says the CEO, who warns that with its new policies, the Town Hall led by Manuela Carmena (Ahora Madrid) “is going to cause exactly the opposite of what it seeks; house prices are going to increase”. Echavarran forecasts that developable land prices will rise “by at least 10% over the next two years, and in some cases by even more”.

Some players are already speculating

“Housing developments inside the M30 are almost anecdotal” and the funds are aware of this situation, which is why some are already speculating with land, although not in an obvious way. “They have purchased land to develop some of it and sell the rest”, explains Echavarren.

That was a common practice during the boom years. Developers used to buy up large plots of land, develop one phase and wait for that phase to push up the value of the remaining land. With the sale of that remaining land alone, they would recover all of their investment.

According to the CEO, another tactic being employed in the development sector is the purchase of office buildings for conversion into residential use. “Financing is available for end buyers with very good conditions and also to developers looking to convert properties into homes for buyers of a certain level”.

And it is not only changes of use that are being financed, developments themselves are also being funded. “If you purchase land, the bank will only give you financing when you have received sufficient pre-sales, normally around 30%”, explains the CEO of Irea. “Once you have made the 30% pre-sales, the bank gives you 100% of what you have left and may even lend you up to 50% of the cost of the land. As such, you are really well funded, for between 60% and 75% of the final sales price”, says Echavarren, who adds “if I were managing an opportunistic fund, I would recommend buying land in Madrid”.

Original story: El Economista (by Alba Brualla)

Translation: Carmel Drake

Sabadell To Release 800 New Homes Onto The Market

27 July 2015 – Expansión

The improved outlook regarding the performance of the Spanish economy is reflected in the real estate market, where prices are stabilising and even increasing in certain areas of Madrid and Barcelona. And the stocks of newly constructed homes are drying up in some towns, due to a lack of new developments in recent years.

Against this background, cranes are returning to the domestic landscape and banks are taking on a new role in the market for real estate development, as they aim to generate returns from the land and half-finished construction projects that they foreclosed in exchange for debt payments. And Sabadell is playing a very active role. It will release 800 homes onto the market over the coming months.

The bank led by Josep Oliu is currently developing eleven of its own real estate urbanisations, most of which are located in Barcelona, Andalucía and Levante, but also in País Vasco and Asturias. The construction work will be completed during the remainder of 2015 and 2016, and will culminate in the release of more than 400 homes – flats and houses – onto the market, over several stages, with some of the properties already being sold.

Beside these developments, which spread across the country and whose degree of completion ranges between 15% and 100%, three other new developments will be started after the summer in Madrid – in the towns of Colmenar Viejo and Alcalá de Henares – and Levante. Once finished, these urbanisations will contain approximately 400 homes.

During the first half of 2015, 46% of Sabadell’s property sales were made in cash, whilst 37% were financed by the bank and the remaining 17% were funded using loans from other entities. In fact, the Catalan bank is offering buyers both variable rate and fixed rate mortgages – at Euribor plus 1.6% and 2.9%, respectively.

The entity’s real estate and mortgage offer is in line with those of other banks such as Santander and BBVA, which are developing 600 different urbanisations at the moment, as well as with that of Sareb, which will release 1,200 homes onto the market during the remainder of 2015, in some of the 30 developments that it completed last year and the 42 that it currently has on-going.

Signs of recovery

After an intense and long-lasting period adjustment, both in terms of activity and prices following the burst of the real estate bubble, the sector is now showing clear signs of recovery, to the extent that foreign funds have also entered the sector for the development of homes. But, is there a risk of excess supply?

Residential development is likely to grow over the next few years, says Javier López Torres, the partner responsible for the real estate sector at KPMG in Spain. And there is still room for more new builds without any risk of a new real estate bubble, says an expert from Andbank, Rocío Ledesma. And Sabadell wants to maximise the opportunities in the market through its development company Solvia.

Solvia is dedicated not only to the development of urbanisations owned by the bank, it also works for third parties. It is a servicer with assets under management amounting to €28,000 million, and it offers services ranging from the management of loan portfolios, to the development of land, as well as the management and administration of assets. In fact, Sareb awarded its first asset management contract to Solvia.

Original story: Expansión (by Alicia Crespo)

Translation: Carmel Drake