Speculation Returns To The Market For Land In Madrid & Along The Coast

11 April 2016 – ABC

During the years of the crisis, investors regarded land as one of the least attractive assets. In fact, in the face of scarce demand and the paralysis in the construction sector, land values fell to historic lows. (…).

Sales of urban land, the substratum of real estate developments, are growing again after nine years of consecutive decreases. And they are doing so at a healthy – and on occasion, vertiginous – rate in certain areas of the country where the housing market has already started its recovery, such as the more illustrious areas of major cities, including the north of Madrid and established areas along the coast (Málaga, Palma de Mallorca and the Canary Islands). So much so that a warning is now spreading amongst analysts and agents in the sector: the scarcity of developable land – which does not require land planning approval – in certain areas, and renewed interest from investors is generating a new “overheating” in the price of transactions, something not seen since the burst of the real estate bubble.

The latest “Market Trends” report prepared by Solvia, the real estate arm of Banco Sabadell, warns that the expectation of a strong recovery in value is incubating operations of a speculative nature. “The fact that the supply of well-located land is scarce in areas with demand, that there is widespread liquidity in the market and that there is fierce competition to acquire assets, means that land purchases are being made for speculative purposes, in certain specific cases, for subsequent resale at significantly higher prices”.

In this sense, the study, which does not cite who is behind such transactions, highlights the cases of the Madrilenian neighbourhoods of Valdebebas and Montecarmelo. In the case of the latter, the price of land has risen by between 40% and 60% to €2,400/m2.

Montecarmelo and Valdebebas

Fernando Rodríguez de Acuña, Director General of Operations at the consultancy firm RR de Acuña y Asociados distinguishes between three players in the race for land: the financial entities and large investors, who have put their assets up for sale “in stages” and the small and medium-sized funds, which are more prone to speculative operations given that they seek high short-term yields. The confluence of these players has given rise to a situation in which both the activity and value of these real estate assets have increased significantly, if we exclude the statistical effect of operations carried out by financial entities foreclosing unpaid debt. Thus, the number of transactions carried out by operators in the sector (developers, funds and cooperatives) increased by 37% in 2015 compared with the year before and by 60% in terms of transaction volume. (…).

According to the experts, two operations in particular have caused prices in the land market in the Spanish capital to sky-rocket: firstly, the sale of 14 plots containing more than 93,000 m2 of buildable space, by the Valdebebas Compensation Board to the property developer Pryconsa for more than €55 million and secondly, the acquisition of a plot of land in Montecarmelo by Cogesa, which belongs to the Dragados group, for more than €20 million. (…).

Original story: ABC (by Luis M. Ontoso)

Translation: Carmel Drake

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

Colau Warns Of RE Bubble Danger In Barcelona

3 March 2016 – Público

The mayoress of Barcelona, Ada Colau, has warned about the imminent “danger of a real estate bubble” in the city, driven by an increase in the price of rental housing since 2014-2015.

The town hall has submitted a report about the increase in rental prices in Barcleona, whose results show an increase of more than 6% in rental housing across the city as a whole, especially where tourism is most concentrated. The neighbourhoods most affected by the rises are Les Corts (8.7%), Sant Martí (8.6%), Sarrià-Sant Gervasi (6.9%) and Eixample (6.7%). “Rental prices in Barcelona have risen by more than in any other city in Spain”, she said.

In light of this increase, the mayoress has asked both the Generalitat de Catalunya and the Spanish State to act to limit future rental price rises, especially in areas where tourism demand is the highest, and to modify housing regulations to “avoid a new speculative cycle”. “We want to raise the alarm because the housing laws have not been modified and that is facilitating new speculation about the housing market, which means that rental prices are increasing in areas where income levels have not improved”, she said at a press conference.

Colau made reference to Germany as an example of good practice in the protection of the right to housing, given that there, the “State allows limits to be placed on rental prices”, depending on the income levels in the areas where prices are on the rise. “We urge the relevant authorities, at both the Catalan and Spanish level, to follow the European example regarding limitations on rental prices in places where there is significant residential demand”, she said.

The mayoress also acknowledged that progress has been made in the battle against evictions and the increase in rental housing in Catalunya, thanks to the approval of law 24 2015, by popular initiative. But, according to Colau, this regulation still needs to be applied to “put an end to mortgage foreclosures and to put a stop to the speculation”. Even so, she considers that “collaboration with the State is necessary” and she took the opportunity to denounce the limited profile the housing crisis is having in the investiture debate.

The mayoress and the councillor for housing, Josep Maria Montaner, announced that the Town Hall has increased the number of homes in the city’s public housing stock by 255, thanks to acquisitions from financial institutions. It is the second batch of homes that the banks have transferred or sold to the town hall, below market value, to increase the city’s pool of rental housing and to resolve the social emergency. Specifically, 50 flats have been transferred in 8 years, 131 homes have been purchased below the market price and the right of first refusal has been granted on another 28 homes.

With these, the municipal government has now obtained 455 homes from the banks for inclusion in the public housing stock, during the course of its mandate (in addition to the 200 granted by Sareb and the 50 from CaixaBank). (…).

Original story: Público (by Laura Safont)

Translation: Carmel Drake

Aguirre Newman: 2016 Is Going To Be A Good Year For RE

26 February 2016 – El Economista

According to the President of the real estate consultancy Aguirre Newman, Santiago Aguirre Gil de Biedma, the real estate sector is going to continue to see an “extraordinary” level of activity in 2016, thanks to the significant interest from investors.

In a presentation at the 2nd Meeting of the Real Estate Sector, organised by the business school IESE, Aguirre was optimistic about the year ahead: “we are continuing to see very significant interest” from investors.

Nevertheless, he lamented the possible effects of the on-going political uncertainty. “We should be worried if we look at what has happened to our friends in Portgual”, he said, although he qualified that by saying that “it will not be easy to undo the reforms approved over the last four years because that would require consensus”.

“These reforms have given us stability and confidence in the markets, which will continue for the next few years”, he said. In any case, Aguirre expects the panorama in his sector during the second half of the year to be “much clearer than it is now”.

A new sense of normality in the real estate sector

Meanwhile, the CEO of the appraisal company Tinsa, Ignacio Martos, confirmed that we are experiencing a new sense of normality in the real estate sector. “The increase in prices during 2015 was consistent. We are facing a scenario in which asset prices are very good and it is likely that they will continue to increase”, he said.

In terms of the near future, Martos advised investors to “not gamble too much” to “take the right decisions” in a market that is going to be characterised by caution.

When asked about the trend in the sector, Martos said that speculation and large price movements “are now a thing of the past” and he agreed with Aguirre that the market “is in a good position” and “there are going to be lots of opportunities”.

Original story: El Economista

Translation: Carmel Drake