New Housing the ‘Ugly Duckling’ of Spain’s Real Estate Market

CranesIn 2007, the year in which the housing bubble in Spain reached its peak, people would queue at real estate developers’ doors to buy off plan apartments on the premise that “tomorrow will be 6,000 euros more expensive”. In the first quarter of that year housing transactions were closed with a value of 38,906 million euros, 43.5% of which corresponded to newly built houses.

Eight years later, the transactions on new build housing represent just 14% percent of the total transactions closed, according to recent data from the Ministry of Public Works, which revealed that, between January and March 2015, the free housing market moved 10,540 million euros, which represents an increase of 0.8% over the same period of the previous year.

New housing, however, registered a decline of 17.7% in the first quarter of the year, compared to the same period of 2014, becoming the ‘ugly duckling’ of the new and stabilised Spanish real estate market, with barely one in every 10 homes sold today being of recent construction.

In fact, according to the article published by property portal earlier this week, in the first three months of 2015, just 9,182 new homes were sold, with a value of 1,489 million euros, and an average value per transaction of a little over 162,000 euros, which is almost 20% less in the volume of transactions and 15% less in value, than in the same period of last year. The data for the first quarter of this year is the worst data since 2013.

In contrast, a total of 71,715 transactions were closed in the first quarter on second hand property with a value of 9,051 million euros, and an average transaction value of around 126,000 euros, which represents growth of 8.8% in the volume of transactions and of 3.9% in value, compared to the data of 12 months ago.

With regard to transaction value, the regions accounting for the greatest amounts in the new construction real estate market between January and March were Madrid (304.5 million euros), Andalucía (244.1 million) and Catalonia (238 million) while, by number of transactions, the regions which were most active in terms of brand new properties for sale were Andalucía (1,824), Valencia (1,360) and Madrid (1,282).

One of the main reasons for the lack of new development activity is the scarcity of projects in progress and, above all, the difficulty of access to financing being faced by the developers. Although banks are gradually re-opening the credit tap, they are demanding in return that projects be managed by solvent companies, with experience, and that these projects are for quality housing in good locations.

In 2014 the number of licences for new construction work grew by 1.7%, year-on-year, to a total of 34,873 applications, after seven years of continuous declines, and in the first quarter of 2015 construction activity appears to confirm its upturn, with building permit applications for the construction of new developments increasing by 22.7% year-on-year, to a total of 10,681 certificates, according to the Ministry of Public Works.

Should this upward trend continue throughout the year, then it is estimated that 2015 will close with over 42,000 licences, improving on the data from 2014, although still far from the 865,561 building licences that were authorised in 2006.