The real estate development market - Spain

1.2 The world market is highly concentrated

In ****, the global real estate market was worth $*.* trillion, up *.*% from ****. [***]

The real estate market is, according to MSCI This was mainly driven by the United States (***), Japan, the United Kingdom, Germany, China, France, Hong Kong, and Canada.

Source: ****

1.3 Spanish real estate market recovery is driven by second-hand goods

Marked by deep crises in ****-**** and ****, the real estate sector is doing well in Spain, with a strong recovery in sales since ****, which have risen from **.** billion euros to **.** billion euros (***). [***]

Source: ****

At the same time, there has been strong growth in the number of transactions on the market. Indeed, taking into account the apparent cyclicality of the market, we observe for example by comparing similar periods that the number of transactions increased from **,*** in Q* **** to ***,*** in Q* ****, and from ***,*** in Q* **** to ***,*** in Q* **** (***). [***]

Source: ****

Nevertheless, this strong market momentum is not fully benefiting the real estate development business. Indeed, the growth in new housing transactions is much lower than total transaction growth: it was stable overall (***) over the period, with a peak in Q* ****. Thus, it can be deduced that the property market is driven by the resale of second-hand goods, which therefore acts as a brake on property development activity. [***]

Source: ****

Real estate development in Spain

Within this real estate market, real estate development represented a turnover of **.** billion euros in ****, an increase of *.*% compared to ****.

Source: ****

2.1 Home sales are down

 If we first compare the figures for total housing sales in **** with those for the corresponding months in ****, we can see that June and especially August **** are down sharply compared to the previous year. Thus, home sales in August **** fell by -**.*% compared to August ****. [***]

Source: ****

Another criterion for assessing market performance is the comparison of sales for the period January-August **** with the same period in previous years. We can see that the year **** is the first year in which the market has seen a decline in the last * years, with a -*.*% drop compared to ****. Growth has been uninterrupted since ****, with several consecutive years of double-digit growth (***). [***]

Source: ****

2.2 Falling credit rates fuel demand

Interest rates on real estate loans are a particularly important determinant of the demand for real estate. When interest rates are low, they encourage individuals and businesses to invest, since savings are less attractive. Conversely, with higher borrowing rates, the cost of debt can become prohibitive, which in turn curbs the demand for real estate.

Thus, the decline in mortgage rates underway in **** could have a positive impact on demand for real estate, especially if interest rates continue to fall in the coming months. [***]

Source: ****

2.3 Tourism boom drives demand for seasonal rentals and purchases

In ****, purchases of housing by foreigners accounted for **,*** dwellings, or **.*% of the national total and up *.*% compared to ****, almost triple the figures at the end of the ****s. Among these **.*%, there are certainly individuals who wish to live in the country, but also an increasing number of property investors who choose Spain for its good profitability, or many people who come to live in Spain for professional reasons. [***]

Source: ****

Source: ****

Preferred geographical areas of foreign demand

There are also specificities of demand according to the origin of the buyers: for example, while the British prefer the Valencia community, the French prefer Catalonia and the Germans prefer the Balearic Islands. [***]

Source: ****

Source: ****

Source: ****

2.4 Uneven demand across regions

Access to the purchase of housing but is not to the same extent according to the Autonomous Communities. Data from the Sociedad de Tasación thus provide an overview of the accessibility index for housing purchase: this index estimates the relationship between the real purchasing power of an average citizen and the theoretical purchasing power needed to buy a home. The higher the index, the easier it is to buy a home. [***]

The communities with the highest housing affordability indices are La Rioja, Murcia and Aragón (***). On the other hand, the index is ** for the Balearic Islands, ** for Catalonia and ** for Madrid.

Source: ****

Affordability index for the purchase of a home

Spain, Q* ****

Source: ****

3.1 The real estate sector occupies an important place in the Spanish GDP

The real estate sector occupied an increasing share of Spanish GDP until ****: the sector's share of GDP rose from *.*% in **** to **% in ****. Nevertheless, it then decreased to finally represent *.*% in ****.

Source: ****

At the same time, the sector has created more and more value in the economy, with levels of gross value added increasing throughout the period: in ****, value added on real estate activities represented **.** million euros, compared to ***.** million euros in **** (***).

Source: ****

3.2 The boom in real estate development activity

 Real estate development activity has been very successful in recent years, which is reflected in an increase in the number of companies registered under the activity code corresponding to INE (***). Thus, the number of companies increased by *.*% between **** and ****. [***]

Source: ****

Market structure by company size

The Spanish Ministerio de Fomento provides data on the distribution of the sector's turnover by company size. It shows that the self-employed and companies without employees account for **% of turnover, and companies with * to * employees account for **% of turnover. It can therefore be deduced that the market is very largely dominated by small or even very small companies, which account for almost **% of the sector's turnover. The real estate development sector in Spain is thus a highly fragmented sector.

Source: ****

3.3 Value chain and structure of the property developer business

The real estate development activity requires the intervention of many actors upstream of the project, during the project, and downstream. Here are the main players in the real estate development value chain

The master builder. This is the project sponsor, the one who defines the specifications. In construction, the project owners can be households, the State, communities, social landlords, or the promoters themselves

The project manager or property developer. This is the entity in charge of designing the project, monitoring the work and coordinating the trades. They require the intervention of architectural firms, technical design offices, surveyors, etc

Construction companies. They intervene once the design is completed. They take care of the masonry, the envelope, the carpentry, the joinery, the insulation, the electricity, the heating..

The end customers. The final customer can be the owner in the case of the construction of a single-family house for example, but otherwise the final customers are generally households, companies, the State, landowners..

The criteria for success are rapid commercialization and, above all, the conformity of the final result with the budget forecasts. To achieve this, a real estate development operation always follows the same steps

Launch of the project after studying the opportunities. Mastery ...

3.4 The main Spanish property developers

 One of the measures that can be used to gauge the activity of real estate developers is the number of housing units delivered over the next three years (***). [***]

Source: ****

The listing of many real estate developers on the stock exchange

One of the main trends in the structure of the real estate development market is that many companies are going public. For example, Neinor Homes went public in early **** and Metrovacesa in early ****. Among the IPOs expected in the near future are Via Célere, which recently integrated the assets of the company Aelca with a view to such a move. [***]

The arrival of international banks and funds on the market

These numerous IPOs in the sector are linked to another underlying trend: the arrival of international funds and banks as market players, through equity investments in leading companies. [***]

Among the companies previously mentioned as leaders in real estate development in Spain are the following examples

AEDAS: the company is owned by the American fund Castlelake, based in Minneapolis Metrovacesa: the main shareholders are two of the main Spanish banks, BBVA and Santander

Indeed, international funds are attracted by high profitability, estimated at between **% and **% in the residential sector. [***]  

4.1 Products and services

A real estate developer is mainly aimed at individuals, investors, and companies with a real estate project. Generally, they offer real estate development services, but also many other services surrounding their core business

In terms of real estate development they offer contracts:

For Sale in Future State of Completion (***): in this case, the buyer will become the owner of the land once the sales contract has been signed, and then the owner of the property when it is built Real Estate Development: a mandate then obliges the real estate developer, for a price agreed with the client, to carry out a programme of building construction and to carry out directly or indirectly all the activities necessary for the construction

There are also other more specific contracts, such as co-development of assets, leasing contract (***), etc

Promoters may also offer the following services

Property management: rental and technical management, as well as administrative and legal follow-up of real estate properties. Consulting and Transaction: advising companies or individuals on their real estate investment strategies.

Fitting out: definition of a program for fitting out the interior of a building adapted to the client's needs, and carrying out the work. Watch and Trend: identification of the ...

4.2 The resumption of construction

The pace of construction, which had slowed sharply during the crisis in Spain, has seen a timid recovery since **** compared with pre-crisis levels. Thus, in ****, the sector's production index reached ***, ** points below the **** level (***). Nevertheless, this index is up *.*% compared to ****.

Source: ****

Source: ****

The mismatch between supply and demand

Despite this slowdown in the pace of construction and the increase in demand, there is a large stock of unsold new homes in Spain, which is evidence of a mismatch between supply parameters and demand expectations. This phenomenon is particularly present in the Valencian Community (***)

Source: ****

4.3 The rise in property prices is starting to run out of steam

After a fall in prices from **** to ****, the house price index has been on the rise again for * consecutive years, and in **** reached a level of ***.* (***). This price recovery thus reflects a good recovery of the sector after the crisis. [***]

Source: ****

The construction cost index has also been on the rise since ****, which marked the minimum level reached since ****, at around *** in base ****. This index thus reached more than ***.* in ****, illustrating an increase in construction costs in the sector.

Source: ****

Sustained rise in property prices is coming to an end

After the Spanish property crisis in ****, Spanish property prices have been growing almost continuously until ****. Nationwide, the price of real estate increased by *.*% in ****, with double-digit growth in some regions of the country (***)

Nevertheless, in ****, property developers faced a further decline in prices, which could reflect a lack of confidence in the sector. This fall in prices, localized in certain areas of the country, is caused by strong competition and uncertainty in the real estate market, but also by the increasing difficulty in accessing bank financing. Thus, at * th in the first quarter of ****, new housing sales prices fell by -*.*%, with sharp declines in the Balearic Islands (***).

[***]

Large regional ...

4.4 The new development paths of real estate developers

According to a report published by Altus Group There are many changes taking place in the real estate development market today. In the face of these changes, some of the players are ready thanks to a set of measures that have already been designed, while others seem on the contrary to be ill-prepared. The use of new technologies and alternative means of financing are cited as potentially important development factors.

The use of new designs (***) are the main avenues of development for real estate development companies

However, the use of alternative investments represents a major avenue for development since **% of the responding companies say they already use some form of alternative financing and **% think they are turning exclusively to this method of financing

Promoters are gradually turning away from banks or institutional investors to finance their projects. **% of them plan to use joint venture funds to finance themselves, **% plan to call on private investors or to borrow mezzanine debt

The new technologies, according to these same companies, should not have a major impact on the sector. Thus **% of respondents believe that automation should not radically change the sector. They are **% to think this concerning the *D printer.

4.5 The arrival of the web giants in real estate

Amazon is gradually entering the Spanish real estate market.

During ****, the Spanish version of Amazon's website has put around *** properties located in Madrid, Barcelona and on the Mediterranean coast on its site. Although the properties are not for direct sale on the site, Amazon puts the customer in touch with Altamira, one of Spain's leading property developers, whose capital in the country is estimated at more than ** billion euros. The transaction does not take place on Amazon's website but directly with the developer.

This is in line with Amazon's desire to expand its services. In the United States, the American site had already deployed a feature to connect site users with artisans. The initiative was temporary, and the partnership with Altamira also looks much more like a test than a permanent feature.

5.1 The Ley Hipotecaria of 2019

In June ****, a new Mortgage Law came into force in Spain, which entails profound changes in the functioning of the Spanish real estate system and could therefore have a strong impact on real estate development activity.

This Act applies to mortgage loans where the borrower or guarantor is a natural person and covering residential property and real estate. The aim of the law is to offer better protection to consumers who wish to take out a mortgage loan, in particular by giving new transparency to this type of contract and ensuring that no unfair terms are included in the contract (***). Such unfair terms are now totally prohibited.

This law thus imposes new and stricter standards for examining the customer's solvency, in order to reduce the risk of non-payment in the long term. The bank consulted will be obliged to check the customer's credit history in the "Central de Información de Riesgos del Banco de España". On the other hand, the bank will be obliged to give the contract to the client ** days before the date of signature, so that the client can carry out a thorough examination of the terms imposed by the contract. The guarantors of this process ...

5.2 Taxation of real estate in Spain

When a private individual wishes to buy a property in Spain, the different tax elements applicable are as follows:

All taxes and fees generally amount to between **% and **% of the purchase price VAT is **% on the purchase of a new property. On the other hand, if the investment does not exceed ***,*** euros, the transaction is subject to a reduced VAT rate of *.*%. There is also an exception in the Canary Islands, where VAT on the purchase of new property is only *.*%. A *.*% fee must be added for the drafting of legal documents

Nevertheless, like many issues in Spain, the taxation of real estate is one of the decentralised powers of the Autonomous Communities, and as such real estate taxes may vary from one region to another.

There is a special case to bear in mind: if a new property is purchased from a bank that has itself bought it from a property developer, then that property is considered old, and as such is subject to different taxation.

6.1 Segmentation

• Altamira (Santander)
• Solvia (Banco Sabadell)
• ServiHabitat (La Caixa)
• Aliseda (Banco Popular/Santander)
• Neinor Homes
• Metrovacesa
• Testa Residencial
• AEDAS Homes
• MERLIN Properties
• Avintia
• Idealista
• FotoCasa