Residential 2019 | NEW DEVELOPMENT MADRID
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RESEARCH Residential 2019 | NEW DEVELOPMENT MADRID Amara Homes, promoted by Neinor Homes ECONOMIC BACKDROP SUPPLY DEMAND PRICES RESIDENTIAL 2019 RESEARCH The Spanish How does this property cycle differ housing market to the previous one? As the Spanish economy improves and the include the more abundant supply of this The strong performance of the real estate sector - especially major unemployment rate falls – ending 2018 at type of housing on the market, the fact that 14.5%, the lowest figure since early 2009 it is both generally easier to find buyers for cities, such as Madrid and Barcelona - has set alarm bells ringing about "The housing - consumer confidence is picking up, and older homes and that resale prices tend to the possibility of a new property bubble. However, there are several market is currently this is being reflected in a rising number of be more affordable than new-build prices, housing purchases. the potential value uplift that can be achieved differences between the current cycle and that of 2008. thriving thanks to on the purchase price - provided the property According to official data, Spain recorded was not acquired when the market peaked economic growth, 560,000 housing transactions in 2018, up - and the fact that buyers once again have job creation and 9% y-o-y, which broken down by property “ access to bridging loans, among others. a market that type equates to a 13% increase in new-build GRAPH 4 transactions and a 9% rise in resales. 2019 could see an increased number of Key residential market takeaways is regaining the first-time buyers, as families move out of their 2008 - 2019 Residential investment demand and resales rental properties and into their own homes, confidence lost will continue to play an important role in how driven mainly by rising rents in certain prov- the market plays out in 2019. following the inces, more available financing, increased financial crisis" For investors this is largely due to the unat- family income and improved economic tractive yields offered by low-risk financial prospects for the future. assets, rising house prices and the increased Housing prices have continued to rise over confidence in the residential sector. the past year, climbing 4% y-o-y on the STRICTER MORTGAGE In 2018, resales accounted for over 90% of back of spiralling demand and stunted CONDITIONS all transactions. The main reasons for this supply growth. CHANGE IN SUPPLY AND DEMAND GRAPH 1 GRAPH 2 GRAPH 3 Housing starts and completions No. of housing sales Annual variation in housing prices 1991 - 2021 (F) 2006 - 2022 (F) 2015 - 2018 STARTED COMPLETED NEW-BUILD EXISTING HOUSING NEW-BUILD EXISTING HOUSING vs PRICES BELOW 2008 2019 1,000,000 800,000 5.0% MARKET PEAK 700,000 800,000 4.0% 600,000 500,000 600,000 3.0% LOWER EFFORT 400,000 RATE TO BUY 400,000 2.0% 300,000 A HOME 200,000 200,000 1.0% 100,000 0 0 0.0% 2015 2016 2017 2018 91 93 95 97 99 01 03 05 07 09 11 13 15 17 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 21(F) MORE 19 (F) 2019 (F) 2020 (F) 2021 (F) 2022 (F) PROFESSIONAL MARKET Source: Ministry of Public Works | Source: Ministry of Public Works | Source: Ministry of Public Works Knight Frank Valuations Department Knight Frank Valuations Department Source: Knight Frank Research 2 3 RESIDENTIAL 2019 RESEARCH Mortgage lenders now take and nowhere is this more evident than in the Prices below market peak role of developers. Prior to the crisis, frenet- a stricter and more cautious Housing prices started to climb in 2014. approach ic levels of demand led to an exponential in- Proptech crease in the supply of new developments. Last year, prices for new-build housing rose by an average of 2.3%, while resale pric- One of the main differences is that prior As a result, some of the developments that to the crisis, too many mortgages were is- es climbed by an average 4% for Spain as were brought to market during the years Digital transformation the real estate sector. This includes com- begin to appreciate the increased efficien- sued, some even above the value of the a whole. However, this growth has not been leading up to the crisis, no longer make the panies who use technology to change and cy and productivity that it offers. Technol- home. Now, financial institutions are more uniform across the board. While some ar- poses the greatest grade and fail to offer a real alternative for improve the way we buy, let, sell, design, ogy can be used in many different areas thorough and impose much stricter terms eas of Madrid and Barcelona have seen challenge for companies today's buyers. build and manage residential and commer- of the real estate market to create value. and conditions, lending a maximum of 80% double-digit price growth that has almost today, who must strive cial properties. Proptech is a new term that can be applied of financing of the sale or valuation value, Developers are therefore now taking on marked record highs, other provinces are still considerably lagging prices recorded to all kinds of areas, from marketplaces, whichever one is lowest. In 2018, 74% fewer projects that are able to meet the expecta- to stand out from the The word originates from the joining of a decade ago. software companies and data analytics mortgages were signed compared to 2006, tions and needs of today's most demanding competition. "prop" from property and "tech" from tech- firms, right through to the latest real estate when a record number were granted. buyers, using high-quality sustainable ma- nology, to describe companies in the real investment market trends. terials and technology. Housing supply and estate industry with a high tech compo- Another major difference – and one that Technology is our greatest ally when it nent. This new concept - a key force in The application of this technology to the res- has boosted consumer security – is the in- demand Lower effort rate to buy comes to making our day-to-day lives more the technological revolution - is rapidly idential real estate market has digitally trans- creased financial control that borrowers now a home During 2018, just over 560,000 open-market efficient. The concept behind Proptech is catching on, with companies increasingly formed the sector, creating an end-to-end have for up to 30 years, meaning mortgages homes were sold, well below the 900,000 re- the application of technology to any area of moving into the world of Proptech as they service tailored to meet current demand. are no longer dependent on Euribor fluctu- It currently takes an average of 7.4 years of corded in 2006. This demonstrates that al- ations, thereby reducing the risk of defaults gross household annual income for a fam- though the market is very active, levels re- and arrears. ily to purchase a home, a number that has main a far cry from the previous market peak. been steadily climbing since 2014 – large- ly due to the fact that property prices have Resales continue to top the board, account- Developers: more risk averse Crowdfunding and an ever more profession- been rising faster than salaries. Although ing for 90% of all housing sales, compared Big Data Blockchain the effort rate has grown considerably, it is to 10% for new builds - with the market is alised sector y crowdlending a far cry from 2007, when it took nine years still lacking in new-build developments that The sector has undergone a sea change, to buy a house. offer a real alternative for buyers. Big Data provides companies with informa- Crowdfunding and crowdlending are alter- Blockchain is one of the key aspects of tion, compiling a vast amount of data from native forms of investment to traditional pro- the current digital transformation of the a wide range of sources, which are pro- ject financing channels, which would other- economy, as it allows a large amount GRAPH 5 GRAPH 6 cessed as quickly as possible and divided wise only usually be accessible to funds or of data to be collected from all parties Mortgages over time Achievable annual effort rate (%) up into three different categories: institutional investors. in the network without the need to 2004 - 2018 2004 - 2018 centralise any information. It is ideal for 1. Collection of information about clients, Crowdfunding allows investors to be in- situations where growing quantities of dates, images, video and audio. volved in all aspects of a project – not just data need to be stored in real time. AVERAGE PRICE (€) NO. MORTGAGES HOUSING PRICES / GROSS HOUSEHOLD INCOME (YEARS) the financial side – and achieve returns that ACHIEVABLE ANNUAL EFFORT RATE EXCL. TAX DEDUCTIONS (%) 2. Detailed information about commercial are proportionate to the project's success. Generally speaking, blockchain allows Average No. Effort rate Years activities. transactions to be carried out securely, price (€) mortgages 3. Social interactions. Crowdlending only covers the financial 60% 10 side and will always generate a previously cutting out the third party. Buyers and 160,000 1,600,000 sellers will connect via a platform, which 9 Efficient and orderly data analysis enables agreed lower fixed return, except if the pro- will allow them to buy or let homes. 140,000 1,400,000 50% us to respond to consumers and adapt ject goes into bankruptcy. 8 to their needs, making it easier to make 120,000 1,200,000 7 strategic decisions. In 2016, Housers launched the first resi- In practice, blockchain has been used 40% to guarantee the security and devel- 6 dential project to be financed via a crowd- 100,000 1,000,000 In the future, a profile will be constructed funding campaign.