What Can We Expect From The Housing Sector?

30 November 2015 – Cinco Días

It goes without saying that the real estate sector was the most vilified during the crisis. Blamed for almost all of the problems that ended the greatest economic boom in recent history, the sector has been striving to rise from the ashes since the end of 2013. International investors returned to Spain first, attracted by the low prices – according to statistics, property prices have now decreased by between 30% and 40% since their peaks.

Next, came a rise in the number of transactions, driven by improvements in the labour market and expectations of an economic recovery. Following this increase in sales, came a moderation in the price decreases and, finally, the cranes returned to the urban landscape of the large cities, albeit in a very piecemeal way. The housing stock, i.e. the huge surplus of new homes (389,00 units in total, according to a recent study from Tinsa), has stopped representing such a problem in certain cities and therefore, the moment to return to property development has arrived.

The problem is that the crisis has practically destroyed the real estate sector along the way. Today, sales represent just one third of their levels in 2006, firms are constructing only 4% of their historical peak volumes and instead of property developers and construction companies, the business has now diversified and is in the hands of the banks, Sareb and new servicers.

Macro-economic figures

The truth is that the key macroeconomic figures are starting to show real signs of the real estate recovery. Employment is growing by more than 3% and the flow of financing is increasing. Mortgage lending continued to increase at rates exceeding 20% in September, which means that it has now been recording double digit increases for 16 consecutive months.

Nevertheless, the experts warns that the “exit from the crisis is not going to be the same for everyone”, says Luis Corral, CEO of Foro Consultores. “There is a dual market. The euphoria being seen in Madrid, and to a lesser extent in Barcelona, contrasts starkly with those places where the surplus has not yet been digested and, therefore, nobody wants to build there”, he says.

The evolution of these two variables, employment and credit, will determine whether the recovery strengthens or stagnates at its current modest figures. Demographics are working against it, since the rate of household creation that was seen at the end of the 1990s, which really spurred on real estate demand, is not expected to be repeated, according to the population projections made by Spain’s National Institute of Statistics. That is why nowadays, almost no-one, except from the sector association Asprima and the appraisal company Tinsa, dares to venture a projection about what demand for homes will be like in the future. Both entities forecast that between 200,000 and 250,000 homes will be constructed over the next few years.

New Projects

Prudence is one of the key words that everyone is talking about in the market at the moment. Prudence in terms of projections, lending, construction etc.

Refurbishments

Moreover, the logical evolution for Spain’s stock of more than 25.5 million homes involves renovations and refurbishments. The vast majority, almost 95% of homes, do not comply with basic energy efficiency criteria and many established neighbourhoods in large cities could be rejuvenated with good urban renovation and renewal projects, with the corresponding boost to activity and employment that such projects would involve.

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

Tinsa: 24.9% Of Homes Completed Since 2008 Remain Empty

26 November 2015 – El Economista

24.9% of the homes completed since 2008 remain unoccupied, according to a report entitled “In-depth analysis of the housing stock 2015”, compiled by the real estate valuations, analysis and advisory company, Tinsa.

1.56 million new homes have been constructed in Spain since 2008, a figure equivalent to 6.4% of the total real estate stock, of which 389,000 remain empty. It estimates that it will take an average of 2.5 years to find owners for thema all, according to the study. (…).

Therefore, Tinsa considers that, in general, this stock of new homes will not be fully occupied until the first half of 2018.

In turn, this scenario implicitly assumes demand equivalent to 150,000 new homes per year will be sold, self-promoted or rented, over the coming years.

Nevertheless, in areas where the surplus falls below 10% of the constructed stock, it estimates that it will take only 1.2 years for them to be occupied and in areas where the surplus exceeds 50%, itestimates that this time period will increase to four years.

In this sense, funding difficulties, the increase in unemployment and the outlook of falling prices have been the factors that have slowed the number of sales.

Prices have not still adjusted to the market

Tinsa believes that prices have still not adjusted to the market and that they still need to fall for almost one third of the stock located in the areas that have seen the most construction activity in recent years.

The company also considers that prices will remain stable for 41.3% of homes, will decrease by between 0.1% and 6% for 29.5% of homes and will rise by between 0.1% and 6% for 29.1% of homes. (…).

13.9% of homes are still owned by property developers

13.9% of the empty new homes are still owned by property developers, whilst the remaining 86.1% are owned by other organisations, mainly banks.

In this context, it is hard to estimate what percentage of empty new homes are not being marketed, since it depends on the operators.

Amongst the reasons for the existence of this stock are that home owners would rather wait for prices to rise to obtain higher returns and also that no effective demand exists.

Meanwhile, the company highlights the reasons why homes on the market are not being sold or rented, including insolvent demand, poor location in some cases, high prices and the lack of established environments (local amenities etc).

Percentage by province

By province, Almería has the highest proportion of empty properties, with 38.9%, followed by Cuenca and Castellón, with 37.1% and 36.1%, respectively.

By contrast, Álava is the province with the lowest proportion of empty homes, with 10.3%, followed by Guipúzcoa with 15.2% and Navarra with 17.6%.

Nevertheless, in Madrid and Barcelona, construction needs to begin to avoid shortages within the next two years. This is also the case in the cities of Málaga, Granada, Girona, Oviedo, Santander, Vigo, Pontevedra, San Sebastián, Gijón and Avilés.

The same situation has also been identified in certain municipalities on the Costa del Sol, on the north-east coast in Girona and in Cádiz, as well as in some of the island regions, such as on the Balearic Islands and Tenerife.

Original story: El Economista

Translation: Carmel Drake

Lone Star To Spend €500M On Land For Homes in 2015

11 June 2015 – Bloomberg

Lone Star Funds, the private-equity firm founded by billionaire John Grayken (pictured above), will invest as much as €500 million this year buying land in Spain for housing developments as demand picks up.

“Despite the glut of homes in Spain, there are areas where stock is running out and we aim to fill that gap,” said Juan Velayos, CEO of Neinor Homes, the Lone Star unit seeking to become Spain’s biggest home builder. “We aim to build homes where there is solvent demand and where people can afford to and want to buy.”

Lone Star’s blueprint for Neinor signals the changing sentiment toward the nation’s residential property market, which is rebounding after a six-year slump when prices fell by as much as 40%. The company will buy land in Madrid, Barcelona, the Balearic Islands and some coastal areas where stock is being depleted, Velayos said in an interview in Madrid.

Dallas-based Lone Star bought Neinor from Spanish lender Kutxabank SA in December for €930 million. It has already signed contracts to purchase 230,000 m2 of land for €187 million to construct 2,050 homes, Velayos said. The firm will target middle class homebuyers aged 40 to 50.

House prices rose by 1.5% in the first quarter from a year earlier and there was a 9.4% surge in transactions. The Madrid region is helping to lead the revival, with sales jumping by an annual 20% in April, while the volume of transactions grew by 18% in Cataluña.

‘Astute’ Strategy

“Their strategy has a very high chance of success as properties are literally flying off the shelf in these areas,” said Fernando Rodriguez de Acuña, head of Madrid-based property research firm R.R. de Acuña & Asociados. “Targeting that stratum of the population is very astute given that that age bracket normally has stable employment, savings and already some equity in housing.”

Both domestic and international buyers evaporated when the economy collapsed during the financial crisis, leading to an international bailout of Spanish banks and the worst recession in the country’s democratic history. An excess of credit-driven construction before the slump led to a surplus of more than 1.6 million homes after sales plunged from 955,186 units in the peak in 2006 to 365,594 units last year.

Possible IPO

“Demand for homes in Spain will never go back to the numbers we saw at the peak of the boom and for this reason we have carried out extensive research,” Velayos said. “Many excess homes and land are situated in areas that will never sell because there is simply no demand. So we only develop in areas where we have the complete conviction that people can and want to buy.”

An initial public offering of Neinor could happen if the plans for the company work out, Velayos said.

Spain has an excess of 1.6 million empty homes, of which as many as 60% were built in areas where there is no demand, according to Rodriguez de Acuña.

“Madrid, Barcelona and good areas on the coast such as Málaga are where we are seeing the most activity and the jump in transactions that we are seeing corresponds to those areas,” Rodriguez de Acuña added.

Original story: Bloomberg (by Sharon Smyth)

Edited by: Carmel Drake

There Are 465.635 New Houses Pending Sales – Just Like Before Crisis

21/11/2014 – Cinco Dias

Before the real estate bubble burst, housing market had never used stock or surplus production as relevant growth indicators. Cheap financing and well-faring economy providing jobs have boosted dwelling construction which continued to progress feverously even at the beginning of the recession, deep into 2008.

Already in 2006, the construction sector understood the rapid pace may not be maintained for a long time. The pitfall is that it takes between 18 and 24 months on average to complete a housing development, counting from the moment of obtaining all necessary permits and licences. Halting the process is no small task.

The recession caught many developers in the middle of building works as they had only a part of the houses sold out. Then, majority of them opted for finishing the projects and temping the buyers with completed dwellings. However, many municipalities got marked with skeletons of unfinished or barely started buildings. Cranes disappeared.

Return of Lending

Since mid-2013, the market has been picking up from the ashes step by step. Certain activity was spotted, prices and sales geared up, and the path towards improvement has been inevitably taken. Banks started to finance projects again, somewhat reluctantly though. But this factor was the only missing to stop the price slump reaching 50% from value peaks.

Over the dark years, many developments were brought to an end. And now, sharply increased sales could finally help to reduce the new property stock awaiting their new owners. The Spanish Confederation of Associations of Construction Products Manufacturers (or Cepco by its abbreviation in Spanish) employs the same methodology to estimate the stock as the Ministry of Public Works (i.e. basing on purchases and new home construction data).

Thus, Cepco calculates that as of the end of the second quarter of 2o14, there were 465.635 new and unsold dwellings in Spain. The figure means a 14.3% (or 77.930-unit) decrease from mid-2013.

In 2010, the surplus stock hit highest – 692.560 new homes. Since that time, the volume has shrunk by exactly one third, as it saw 220.000 units finding purchasers. This way, the level comes down to the year 2007, reaching 413.642 dwellings in excess.

Is there any optimum stock level for this market, in which, like in other sectors, trespassing the minimum would result in pricing tensions? Experts have diverse opinions on the matter. They do agree, though, that due to Spain being such a tourist-mobbed country, it could afford to premanently have between 100.000 and 150.000 new homes for sale, like it had in 2004, according to the report.

When will the present 400.000-new home volume be absorbed? It´s difficult to tell. Moreover, the sector is aware that many of the dwellings may never be sold because of their location and infrastructure. But specialists do not portend destruction for them.

What we know for sure is that if improvement in lending and favorable economic circumstances persist, the sector will soon notice another clear recovery sign: started homes will exceed the number of finished units.

As Cepco reports, in July 4.641 new dwellings were initiated and 4.410 finished. This has happened for the first time since mid-2007. Furthermore, from January to August, there were 31.075 completed houses and 24.696 started. The perfect scenario would be to construct only in places where the real demand exists.

 

Original article: Cinco Días (by Raquel Díaz Guijarro)

Translation: AURA REE

Madrid’s Housing Surplus to Shrink to 12.000 Units by the End of 2015

17/10/2014 – El Confidencial

From around 60.000 surplus properties in 2009, the Community of Madrid is set to pressure the volume to less than 12.000 by the end of 2015. This means an absorption of 80% of the stock within 6 years.

Spain as a whole will also stand tall in terms of drainage. From having exceeded the number of 900.000 unsold units in 2010, 2015 will close at 563.000 properties, or 40% less. The data has been provided by the 21st Edition of Real Estate Heart Rate Monitor (XXI Edición del Pulsímetro Inmobiliario) elaborated by MAR Real Estate in cooperation with the Institute of Business Practice (Instituto de Práctica Empresarial or IPE) and the Spanish Realtors Association (Red Nacional de Asesores Inmobiliarios Cualificados or RAIC).

According to the report, ‘it is a sustainable growth scenario, housing means an investment opportunity to some savers, especially if low returns on other alternative options considered’.

Likewise, the study indicates that small savers are shifting their deposits on housing, amounts ranging from €100.000 to €500.000, focusing on Madrid, Barcelona and the coast, where two thirds of transactions are sealed in cash, while nationally the number posts 25%. The figure has doubled since the beginning of the recession.

The IPE’s Real Estate Institute director Jose Antonio Perez states that foreigners are beyond the shrinking volume of surplus stock. ‘Non-residents buy more and more, led by the British, the French, Germans, Belgians, Scandinavians, Russians and the Chinese who come to Madrid and some coastal areas. Spain regains its attractiveness thanks to the sun, the cuisine, the entertainment and the infrastructure. And in order to enjoy all that, square meters are a must’, he adds.

In fact, it is expected that sales in Madrid’s Community will reach 47.000 units in 2015. Better performance will trigger re-valuation of Spanish homes which will cost around €192.000 on average. To compare, last year the mean showed €174.000 per unit, while in 2012 – €200.200.

In Madrid only, the number of transactions is predicted to hit 29.200 deals, surpassing the 2008 and 2009 levels.

Turn in Tendency

Additionally, the report states that a change in tendency in the real estate sector has been proven by official statistics. All in all, the study bases on them. Thus, the market saw an increase in sales – BBVA puts it down to improvement in unemployment rate -, new construction reactivation and a delicate rebound in housing prices, especially clear in big cities like Madrid where in some areas the product falls short.

‘The vicious circle has become the virtuous circle. The downward tendency broke with an exception for several cities and zones where recovery will arrive late‘, says Daniel Sanz, architect and the head of Madrid office of MAR Real Estate.

‘This is the moment to select best homes at best prices in neighborhoods like Chamberi or the center in general, where currently deals, prices and demand, above all for rehabilitation projects, are at their heights. These areas have not only overcome the crisis but they begin the new cycle with almost inexistent surplus’, the specialist explains.

 

Original article: El Confidencial (by E. Sanz)

Translation: AURA REE