The new Phoenix Bird: the construction of homes reborn with force in Spain

26 September, 2017

We have been witness for years of a real meltdown of the sector, in which big companies have collapsed, such as Parquesol, Martinsa-Fadesa or Reyal Urbis, which have been the subject of the largest bankruptcy proceedings in the country, along with countless other companies. Without going further, Reyal Urbis just a few days ago went into liquidation.


A great problem arising in these cases is what cares have been implemented to the constructions, most of them half finished, and therefore unsaleable, provoking the lack of revenues that could enable its completion or correct preservation. It is very probable that a large part of these unfinished constructions shall be demolished, if their restoration is not economically profitable. Moreover, much of that work is not located in suitable places.

But in the meantime, this situation has created a great demand for housing, and now property developers are emerging to satisfy this demand; developers who have learned from previous mistakes, like to rely excessively on external finance (although it is true that we cannot compare the cost of money nowadays, with those of the previous decade), or to not study, in depth and for the long term, the intensity, location and type of demand, to adapt the constructions to be undertaken. Time for building anything anywhere, and to see afterwards to whom it can be sold, is over.

It should also be borne in mind that, beside companies that have survived or have been redone, new promoters are appearing on the market, which are true ‘carriers’ of the sector, such as Neinor, Aelca, Aedas, Vía Célere or Kronos, willing to introduce themselves into the construction of homes; and behind them, there are large foreign investment funds, which provide their own financing. Time for promotions with almost total external finance, hanging afterwards in a thread as soon as it takes a couple of months to sell the apartments, is over, as well.

It seems that the current potential market is demanding well-done houses at a reasonable price, even off plan.

In order to do this, the promoters have the challenge of, not only doing things well, but also reducing costs, industrializing the activity and – we hope – to understand this activity with a certain restraint of serious businessmen, pondering the traditional concept of ‘fast enrichment business’, and avoiding the excesses and the corruptions of the past. An appropriate legislation should help to that.

Access to housing should be facilitated to young people who, although many of them with moderate incomes, are coming to the market.

This is a long-standing challenge, and to this end, the new investors, heavily backed, are investing billions of euros in land located in strategically well-studied areas that, even now, are being kept at low prices. It will also help the still low labour costs, after the great punishment suffered by the sector. This punishment also allows experienced managers, aware of the previous errors, to re-join the sector.

The project we are talking about is big: developers talk about a total of more than 40,000 homes in the next three years, a figure that seems low, if employer organisations estimate that there is a deficit in Spain of 150,000 homes. And let’s not forget that construction is one of the sectors that most jobs creates without a need of great qualification. This employment, in turn, generates purchasing power for the acquisition of housing, increasing the demand.

For this goal, the banks have to respond adequately, to support the buyers in this challenge, because they are a bit scrambled today, largely because of some unfair performances for their clients. According to the Central Bank of Spain, the unofficial rescue has costed to the public treasury more than 60,000 million Euros, rescue that has been largely provoked by the non-payment of unpayable mortgages on overvalued apartments. It is time for the bank to correct old mistakes, and, mainly both promoters and financiers, to care for a more habitable world, -while it may appear redundant, speaking about housing- and it would be desirable to avoid, because of its importance, to treat housing as an instrument for speculation.

The purchase and sale of homes already rose 16.8% in July, compared to the same month in 2016, according to the National Institute of Statistics (INE). We are, therefore, undergoing to the resurgence – like the phoenix bird – of the sector that brings the most performances: activity, financing, employment, and citizens involvement into the satisfaction of having a home. We will be attentive to these movements, which may mean important investment opportunities.

Juan Núñez
Partner. Abogado.

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