Government sees light at end of tunnel for residential construction, builders merchants see oncoming train

High ranking government officials claim that the residential construction sector is touching bottom, but Spain’s builders’ merchants association isn’t so sure.

Spain’s excess inventory of newly-built homes has peaked and is starting to decline, reducing one of the biggest obstacles to recovery, Finance Minister Elena Salgado has claimed.

According to Salgado, the glut of new homes stopped growing in the first half of the year, and will fall by 20pc in 2011 as resurgent demand beggins to mop it up. Demand is “showing symptoms of recovery,” Salgado told the Spanish press.

There were around 690,000 unsold new homes at the end of 2009, by government estimates. That means the stock will fall to around 550,000 homes at the end of 2011, if Salgado’s forecast is right. That would still be an albatros around the market’s neck.

Salgado’s colleague, Javier Vallés, Director of the Economy Office, also sees cause for some optimism in the fact that house sales are now greater than housing starts – a sign that the sector is starting to return to normality.

Since the summer new homes sales have been greater than housing starts, meaning that “we are touching bottom” in the residential market.

Vallés says the glut is “beginning to disappear” and that residential construction will start to recover in 2011.

But housing starts are down by almost 90pc from the peak, so it is hardly surprising they are now lower than sales. Vallés doesn’t say anything about that.

Neverthless, he sees the sector beginning to return to normality and housing starts recovering next year, which will end the hemoraging of jobs in the construction sector.

Gloomy forecast from builders’ merchants

But that’s not the way that Rafael Fernández see it as head of the building suppliers association Cepco.

According to Spanish press reports he said the construction sector “still hasn’t touched bottom in 2010,” and 2011 will be worse.

Cepco forecast less than 100,000 housing starts this year, and 230,000 construction completions. In 2011 they expect even fewer housing starts and less than 200,000 construction completions.

Buy they do see some glimmers of hope. For example, the stock of homes for sale in Madrid is “relatively small” and a potential recovery in demand for second homes from France and Germany.

So on the bright side, Cepco think the sector might touch bottom in 2011, said Fernández.

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About Mark Stücklin

Mark Stücklin is a Barcelona-based property market analyst and consultant, and author of the 'Spanish Property Doctor' column in the Sunday Times (2005 - 2008). He can be reached by email on ms@spanishpropertyinsight.com.