After years dominating the resale market with their portfolios of repossessions, Spanish banks are now the dominant players in new development, as they start trying to add value to their vast holdings of land. 2014 has been a turning point in the cycle for new development led by the banks, say industry experts cited in the Spanish press.
The Spanish capital is the best example of the banks’ growing power in the new-build market. In Madrid Spanish banks are offering hundreds of new properties in dozens of residential development, finished, under construction, and off-plan (owned by the banks or belonging to developer partners or other owners).
The Spanish daily El Mundo, in its property section Su Vivienda, recently studied at the main new developments in the capita. In total, there are 28 complexes, including one with detached homes, offering hundreds of new homes spread throughout the capital. Properties on offer range from flats for €87,500, to luxury houses priced at over €1 million.
In most of the projects examined, banks all but own the developer, and are heavily involved in the marketing and sales of these developments, in an effort to keep them off their balance sheets.
“Practically all the banks market in tandem with professional developers, who are their partners with experience,” commented to El Mundo Darío Fernández, Director of Residential, Planning and Land at JLL, a property consultancy that works with and advises most Spanish banks.
Sources with first-hand knowledge of how these partnerships between banks and developers work point out that “they’re typically marketing agreements where the developer benefits from the banks’ own distribution network and pays commission on sales”. According to the same sources, there’s a three-pronged driver behind these agreements – the market perception that properties are in the hands of the property divisions of Spanish banks; the developer’s expectation that the buyer will find getting a mortgage easier via a bank sale; and the banks’ collaboration in the developers reducing their debt.
Other sources explain that the type of agreement varies depending on the bank. For example, some banks do not finance projects with developers, even on their own land, unless 70 per cent of presales have been closed. Others give developers the option to buy the land when they’ve sold more than half the planned properties. And lastly, some banks only agree to build on their land if they’re the sole developer.
“In all instances, the banks are so tied to the end result of the development that they always make the developer connected to the project market it with the company chosen by the bank. And obviously, if the bank has its own property division, it gets first choice,” explains one of the experts in this sector.
So, Spanish banks now dominate new development in the capital, with BBVA and Banco Santander leading the pack. But the banks “don’t develop anywhere, they never dive in just like that,” explains an industry insider. For the time being they are going after middle to upper class buyers. “The banks’ figures have to add up and that’s why they make safe bets in good areas and with a good product.”
Solvia, the Banco Sabadell property division, is another company within the banking sector betting hard on residential development. It finished 19 projects in 2013 with 900 homes and up to October 2014, it finished a further 24 with 707 homes. In addition, it has 18 under construction (663 units).
“We’ve started selling off plan again, another sign of change,” Javier García del Río, General Director of Solvia says.