2023-11-27 16:31:36
We are living in a time of crisis in supply and demand and, at the same time, it is becoming more difficult for developers to develop projects every day.
The crisis in the supply of new housing is very important in places with high demand. Less is being built than is needed and buyers have moved to the second-hand market, causing shortages in this segment as well. Spain needs around 120,000 new homes per year to meet demand needs and in 2022 they will not reach 100,000. Furthermore, these homes must be in the areas with the highest population.
The demand crisis is also a reality because it has been contracted by inflation, rising interest rates and economic uncertainty. But, there is a relevant fact, Although demand is contracting, the shortage of supply weighs more. And this has an effect on prices that either rise or remain the same.
And this not only happens in those places that have high demand and little supply, such as Madrid, it also occurs in cities with high demand and abundant supply, such as Malaga. But this is not only a problem in large cities, prices rise in the municipalities of the metropolitan areas of Madrid or Barcelona. The lack of supply strangles the market.
Even in the provinces that we call second speed, despite the little activity, the price remains the same or drops slightly.
Why isn’t it promoted more? What problems does the promoter encounter and why do we say that it is a high-risk activity? There are several factors that cause this situation.
Business plans are often not viable due to the high value of land, the result of scarcity, construction costs, which although they have stabilized, remain in the high range, and due to high financial costs. These have been around 6% annually for the developer. Furthermore, the situation of uncertainty forces the promoter to “ask” for more profitability from the projects, given the risks.
Special mention has financing to the developer that has been tightened not only due to the rise in rates, if not because of the pre-sales requirements, which are generally between 60-70% and, in addition, financial entities require a higher level of own funds from the promoters.
The pre-sales requirements make the viability of the projects difficult, especially considering that real estate activity is lower. And this can cause problems. If it takes a long time to reach that percentage of pre-sales, those made initially may fall and you will enter a commercial loop, with zero progress.
On the other hand, we continue to have a shortage of finalist land, the times to obtain direct licenses continue to be very high and urban management is terrifying.
Who can bring new projects to the market?
Well, very few. Only developers, generally listed, who have sufficient stock of land purchased at good prices. This allows you to go on the market, overcoming the rest of the uncertainties. Promoters who live from day to day have it complicated and if they go ahead with the projects, they must take significant risks.
And what is the future?
We must clear up some aspects such as economic uncertainty, reduce financial costs, and lower inflation. But these depend on economic and international variables.
However, there are some variables that could be solved more quickly: more agile urban planning procedures, entry into circulation of a greater supply of land, which in the case of Madrid is already being managed, but no great joys are expected from here. two or three years.
In Madrid we highlight the large developments that are already underway such as those in the Southeast or Nuevo Norte in Madrid, Arpo in Pozuelo de Alarcón, Huerta Grande in Alcorcón, Los Carriles in Alcobendas or Cerro del Baile in San Sebastián de los Reyes. The main developments will put some 160,000 new homes on the Madrid market over the next 20 years, of which around 60,000 will be protected. And 2024 will be a key year for the start of some of the projects.
The new minister, Isabel Rodríguez, also has a task ahead of her and should promote close public-private collaboration, which does not exist, with the aim of expanding the social housing stock that we talk so much about and that would greatly help the residential market.
And finally, increase the maximum values of the protected housing modules, in order to adapt to the reality of the market and economically visualize the development of this very important activity.
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