Housing being sold below replacement costs

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This topic contains 11 replies, has 6 voices, and was last updated by Profile photo of Anonymous Anonymous 3 years, 5 months ago.

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  • #57580
    Profile photo of Anonymous
    Anonymous
    Participant

    I had a fascinating couple of beers with a developer this afternoon. Well, at least he used to be a developer – off-plan sales ended in 2006 and he hasn’t built anything new since then….that’s 7 years of crisis. He says all other developers he knows are in the same boat. His developments are in working class areas of Catalunya, where the population is now declining. He’s trying to liquidate flats for €80,000 that had a list price of €320,000 and no buyers 😯 He is offering prices way, way below the replacement cost, even if the land = €0. When all the new housing inventory is sold, which it will be one day, people will look back at these prices with amazement. When they start building again in those areas it will be much cheaper housing, much lower quality, because people there basically can’t afford today or in future (unless the Spanish economy undergoes some sort of epiphany 😆 ) the quality they started offering in the good times. So if you live in working class Spain, you would be well advised to get together the capital any way you can to buy a new home from a bank or zombie developer today, because it will never be as good or as cheap again. Obviously this has nothing to do with users of this forum, but it’s quite an interesting story (I think).

  • #117402
    Profile photo of angie
    angie
    Spectator

    Mark, one day the bottom of the market may be reached, or could it just bumble along for a few years and still have ups and downs within that?

    Bearing in mind many experts and some who’ve posted on here for years have also got it wrong, what makes you say this will turn out to be the bottom, is it based on facts or intuition? Some of what’s been said previously would have cost people a packet had they acted on the many predictions. I don’t think anyone knows for sure 😕 🙄

  • #117403
    Profile photo of The Australian
    The Australian
    Participant

    @mark wrote:

    I had a fascinating couple of beers with a developer this afternoon. Well, at least he used to be a developer – off-plan sales ended in 2006 and he hasn’t built anything new since then….that’s 7 years of crisis. He says all other developers he knows are in the same boat. His developments are in working class areas of Catalunya, where the population is now declining. He’s trying to liquidate flats for €80,000 that had a list price of €320,000 and no buyers 😯 He is offering prices way, way below the replacement cost, even if the land = €0. When all the new housing inventory is sold, which it will be one day, people will look back at these prices with amazement. When they start building again in those areas it will be much cheaper housing, much lower quality, because people there basically can’t afford today or in future (unless the Spanish economy undergoes some sort of epiphany 😆 ) the quality they started offering in the good times. So if you live in working class Spain, you would be well advised to get together the capital any way you can to buy a new home from a bank or zombie developer today, because it will never be as good or as cheap again. Obviously this has nothing to do with users of this forum, but it’s quite an interesting story (I think).

    Mark, I like your blog but I disagree with 80K being a great deal…we should compare how much prices rose in the previous 10 – 20 years, then compare to wages and then compare all of that to other data from other countries.

    Otherwise I can tell you gold is cheap just because it dropped from $1,900+ but in reality, the long term price is still way high from the median price….different thing of course would be if we consider also inflation…so in short, not enough information to state that 80K is cheap….look at what yield could they achieve…etc.

  • #117413
    Profile photo of Anonymous
    Anonymous
    Participant

    Aussie,

    This is a fascinating question.

    I didn’t actually say that €80k is a great deal. I was just pointing out that you can’t build the same quality for that price today, even with land at €0. So what happens when the inventory disappears? They will build again one day, but much cheaper housing. Prices will be lower, but so will quality.

    In the short term prices will drop even further in these working class Spanish areas. That €80k flat might end up selling for €35k, which really will be a great deal for the buyer. When they build again, it will cost €30k to build, not €300k, and the quality will match the price.

    What if it is not possible to build at €30k? Then no new housing will be built in these working class areas.

  • #117415
    Profile photo of The Australian
    The Australian
    Participant

    @mark wrote:

    Aussie,

    This is a fascinating question.

    I didn’t actually say that €80k is a great deal. I was just pointing out that you can’t build the same quality for that price today, even with land at €0. So what happens when the inventory disappears? They will build again one day, but much cheaper housing. Prices will be lower, but so will quality.

    In the short term prices will drop even further in these working class Spanish areas. That €80k flat might end up selling for €35k, which really will be a great deal for the buyer. When they build again, it will cost €30k to build, not €300k, and the quality will match the price.

    What if it is not possible to build at €30k? Then no new housing will be built in these working class areas.

    I don’t know about the future, I wish I did, I will just make money trading currencies.

    What I do know is that they were talking about giant 3D printers spitting out homes way cheaper and way faster than current ways.

    A dream. But who knows…

  • #117422
    Profile photo of Anonymous
    Anonymous
    Participant

    @ Mark the word in “working class area ” with €700 take home average pay of a working class this we be +/-, ten times the salary. ( Yes I know €700 is the net salary, couple can double, family assistance etc ) How will they raise the finance i.e ten times the salary ?

  • #117424
    Profile photo of Anonymous
    Anonymous
    Participant

    Yes Shakeel, that is the problem. Spain is too poor to afford the kind of housing it built in the boom.

  • #117425
    Profile photo of Anonymous
    Anonymous
    Participant

    @Mark at €30k that you mentioned is the cost of buying a property in the middle class area’s of cities in Morocco and not in a EU Country. Spain as usual of you look at the history had squandered in opportunities & wealth and have not learnt their lessons.

  • #117443
    Profile photo of Anonymous
    Anonymous
    Participant

    @The Australian wrote:

    @mark wrote:
    Aussie,

    This is a fascinating question.

    I didn’t actually say that €80k is a great deal. I was just pointing out that you can’t build the same quality for that price today, even with land at €0. So what happens when the inventory disappears? They will build again one day, but much cheaper housing. Prices will be lower, but so will quality.

    In the short term prices will drop even further in these working class Spanish areas. That €80k flat might end up selling for €35k, which really will be a great deal for the buyer. When they build again, it will cost €30k to build, not €300k, and the quality will match the price.

    What if it is not possible to build at €30k? Then no new housing will be built in these working class areas.

    I don’t know about the future, I wish I did, I will just make money trading currencies.

    What I do know is that they were talking about giant 3D printers spitting out homes way cheaper and way faster than current ways.

    A dream. But who knows…

    That’s actually one of the coolest ideas I have heard in a long time. There are some companies that at the moment build entire houses in factories and then ship them but I’m not sure how much mony they are saving on it. A friend with a 3D printer has been trying lots of cool stuff out. One of them being parts for his hunting riffles. Worked really well but ofcourse he didn’t try making a barrel since it would fail misserably and I even think it would have been to big for his printer anyway. 😀

  • #117453
    Profile photo of Anonymous
    Anonymous
    Participant

    @mark wrote:

    Aussie,

    This is a fascinating question.

    I didn’t actually say that €80k is a great deal. I was just pointing out that you can’t build the same quality for that price today, even with land at €0. So what happens when the inventory disappears? They will build again one day, but much cheaper housing. Prices will be lower, but so will quality.

    In the short term prices will drop even further in these working class Spanish areas. That €80k flat might end up selling for €35k, which really will be a great deal for the buyer. When they build again, it will cost €30k to build, not €300k, and the quality will match the price.

    What if it is not possible to build at €30k? Then no new housing will be built in these working class areas.

    But are these properties really ‘worth’ their build costs, are the build costs even true? Are they real quality or usual Spanish quality which means subcontracted out watered down cement etc. etc. I can’t believe that these 300k properties were built any better than ten years ago and in ten years time we hope that building regulations will be ahered to so therefore future builds ‘should’ be better quality than what is standing at this point in time.

    80k sounds good but it still is a working class area, which therefore might move up a bit…..but the properties were never worth 150k let alone the 300k prices.

    ?

  • #117456
    Profile photo of Anonymous
    Anonymous
    Participant

    @itsme. today you are saying the properties are worth €80k !!! like few years ago what they being sold for was taken as their worth. It therefore stands to reason that when they become €30k that will be there worth.

  • #58020
    Profile photo of The Australian
    The Australian
    Participant

    To me a property is worth 12 years the annual market rent. If it’s below that, for me it’s cheap enough to buy, otherwise it’s not.

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