Spain house building levels rise for first time in seven years

22 January 2015

Spanish construction companies have begun building new residential and commercial properties at a pace not seen since 2007 as the economy and real estate market continues its encouraging recovery.
During the height of the economic boom the construction industry accounted for more than 10 per cent of Spain’s GDP, and although that figure has fallen to around just five per cent today, industry analysts have remarked that activity in the sector is picking up.
Reuters report that investment in house-building has registered its first quarterly increase between the second and third quarters of this year for the first time since before the crisis.
The last several years have been barren for the Spanish construction industry. Estimates vary on the exact number of unsold new homes on the property market, but somewhere between 250,000 and 850,000 properties have stood empty across Spain since 2008.
Weak domestic demand has left many new properties hard to move. Rising foreign demand has been largely focused on the most popular areas, such as the Costa del Sol, where resale properties tend to be more in demand. However, Spanish buyers are now returning to the property market, lured by lower prices and buoyed by greater economic and employment prospects.
The lending criteria has become much tighter, but more and more banks have begun to cautiously release funds for development projects and mortgages. Collectively, Spain’s banks own more than €161 billion in homebuilder debt, and thousands of unsold or distressed properties.
The new criteria insists that developers must be able to show that half of the properties they intend to build have been sold off-plan prior to finance being given. Developers must also buy the land with their own funds and inject around 50 per cent of their own capital into building costs. Effectively, new building projects must no longer put the wider economy at risk.
This is all good news for the wider Spanish property industry. Tighter regulation on new build projects means more stable market conditions for existing resale properties, easing pricing pressure and creating the right conditions and balance for demand and supply.
Additionally, banks are relaxing their parameters for mortgage lending, which is helping to regenerate the resale property market in Spain. Figures from Reuters show that new mortgage approvals are currently around less than a tenth of the 127,233 signed in early 2006, but the numbers are rising,
“It is about a return to normal activity, it’s not a boom,” said Joan Bertran, head of real estate investment at Banco Sabadell. “The market was almost paralysed for seven years and now there is a backlog of demand.”