26 January 2018 – El Economista
In 2015, the developable land market in Valencia was almost at a standstill. In 2016, a few operations were closed, in some of the up-and-coming areas of the city, with prices ranging between €200/m2 and €300/m2. In 2017, by contrast, those figures soared in the areas with the greatest potential, to reach €650/m2, boosted by growing demand from large groups and international investment funds, which have become the dominant players in a market that is clearly recovering. Sources in the sector estimate that around 80 developments are currently underway in Valencia – at different stages of completion, from requesting licences to construction – corresponding to more than 3,000 homes.
In recent months, interest from property developers has focused, above all, on first-time buyers, in response to the growth in pent-up demand over the last few years. The stoppage of construction work due to the impact of the economic crisis; the lack of stock that fulfils the new expectations of real estate buyers – in terms of quality, size and energy efficiency critiera, amongst other points -, and the improvement in the purchasing power of families, due to the economic recovery and employment, have resulted in a boost in demand for new build homes, with the return of off-plan sales.
“Our projects in Valencia are being very well received. By way of example, the rate of sales exceeds 70% in the case of the development on Carreres, 10 (…)”, says Juan López, Director of the Levante Regional Delegation at Aedas Homes.
“The region has been a little slower than average in terms of the recovery of property development because the impact of the real estate crisis here was much more profound. But 2017 saw the reactivation of projects. This year, players will focus much more on sales and we will have to see whether demand responds and what the rates of house sales are; most of them will be handed over in 2020 and 2021. It is time to turn the words into actions and we have no doubt that buyers will respond. The key is to consolidate a healthy, strong and transparent market that inspires confidence”, said Juan Velayos, CEO at Neinor Homes.
Currently, the Community of Valencia accounts for around 10% of all the new homes being built across the country, still well below the 15% that companies in the sector think it will represent in the coming years – it is expected that the number of new build homes per year in Spain will stabilise at around 150,000, almost twice the number registered in 2017 (80,000).
In 2017, the Town Hall of Valencia received licence requests for more than 2,480 homes, compared with 1,270 in the previous year. The municipal technicians signed the authorisation for 1,180 homes and around 2,000 more are being processed – some, presented almost two years ago, whose delay, according to the sector, is holding back the creation of between 10,000 and 15,000 jobs and €800 million of investment (…).
Pressure on prices
This investor interest in the city of Valencia has resulted in an increase in the average price of developable land and, even, in the signing of land repurchase operations between property developers. Examples include the sale of a 50,000 m2 plot by a local company, Urbem, to Neinor – for which it paid €27 million – as well as the purchase by Aelca of a 6,000 m2 plot from the Libra cooperative; both operations were closed in the neighbourhood of Malilla, one of the up-and-coming areas.
The President of the College of Real Estate Agents of Valencia, Alfredo Cano, warned in December that “house prices in Valencia have increased significantly in 2017, and if there is no change in the trend over the coming months, the situation will be accentuated in 2018. That could give rise to a mini-bubble (…)”.
Nevertheless, experts in urban planning, property developers and constructors rule out that risk in the current climate. “We are not seeing any signs of a bubble in the residential sector. You have to take into account that we are starting from minimum levels and, logically, if there is more demand, prices rise, due to laws of supply and demand, but they will start to normalise”, says Antonio Olmedo, President of the Federation of Property Developers and Urban Planning Agents in the Community of Valencia (Feprova).
Moreover, “and unlike in previous cycles, the lack of mass bank financing for land purchases is limiting investment capacity to a smaller number of professional operators and is forcing rigour in terms of investments; capital consumption is now transferred to the balance sheets of property developers from day one”, says Sergio Gálvez, Director of Strategy and Investment at Aedas Homes (…).
Restructuring of the sector
In terms of the major players, Aedas Homes – in which the fund Castlelake holds a stake – owns developable land in the Community of Valencia for the construction of more than 2,250 homes and is keen to buy more (…).
In addition, Neinor Homes – in which the US fund Lone Star held a stake until the start of January when it sold its shareholding – is heavily backing the region. Over the last nine months, it has closed seven land purchase operations in the city of Valencia and its metropolitan area – with capacity for around 1,200 homes (…).
Aelca – owned by the US fund Värde Partners (…) – is another of the major player taking positions in the region, where it owns land for the construction of more than 2,300 homes (…).
These new players are having to share the limelight with some of the large traditional groups from the sector – such as Metrovacesa, which has 36 developments underway in the Community of Valencia – and with local property developers, which are also standing their ground to an extent (…).
Original story: El Economista (by Olivia Fontanillo)
Translation: Carmel Drake