Investing in the Spanish residential property sector is a 'no brainer' given the country's strong macroeconomic recovery and the increasing willingness of local banks to provide mortgages, according to Juan Velayos, CEO of Spanish developer Neinor Homes.
This marks a major turn-around for the once over-built and over-priced housing sector which seriously dragged down Spain's entire economy in 2008.
'We have built nothing in Spain for 10 years,' Velayos told PropertyEU's Spanish investment briefing at Barcelona Meeting Point recently. 'Now 50,000 units a year are being delivered. What does the market want? It could go as high as 100,000 or 150,000 units.'
The health of the residential sector hinges on the wider economic picture, but the economy needs healthy housing demand to prosper. At the opening of the briefing, Ramiro Rodríguez, an economist in the international research department of BNP Paribas Real Estate Advisory, said the Spanish economy has recovered. 'The economy grew by 3.2% in 2015 and the same level is expected again this year, tapering off to somewhere between 2.2% and 2.5% in 2017,' Rodríguez said.
Velayos doubled down on the growth story. 'Our GDP growth is there better and higher than our peers in Europe. From a macroeconomic prospective residential is a no-brainer in Spain'.
Neinor's CEO argued that the residential market is about mortgages, a product Spanish banks want and must provide. 'If they don't provide mortgages I don't know what they are going to do. The mortgage business isn't about margins; it's about volumes. So, banks have to provide mortgages which is fine for a business like ours.'
Spain's central statistics office published its latest mortgage update in October, showing 20,300 new loans were issued in August, an increase of 6.4% on the same period last year. Mortgage activity, the report said, has increased in 25 of the last 26 months to August this year The average amount for loans rose in August by 4.8% to €110,000.
'Banks want to provide mortgages and we are at the 6-6.5 ratio level in terms of loan to equity that the banks are comfortable with,' Velayos said. Housing is also getting cheaper in Spain, with prices down on average 30-40% on the peak, he added.
As safe as houses?
Velayos cautioned, however, that residential isn't purely a licence to print money. 'It's a risky business for which you need growth, returns and delivery.'
Pivoting to a pitch for the company he leads, Velayos added that the residential market had collapsed until 18 months ago when Neinor came along. 'We have a 200-person platform and a real professional industrial model ready to deliver. We are not inventing anything new. We look at our UK peers, or US peers and even our French peers. We play the cycle, we play the macro situation and I think it is time for residential.'
Neinor Homes reported recently that it had exceeded €500 mln in sales from January to September 2016. This was triple the performance in the same period of 2015. The developer has 22 housing developments 'with cranes installed all around the country', and it intends to add 10-12 additional projects, totalling 2,000 homes.
