Ignacio de la Torre, a partner at financial advisors Arcano, who correctly called the bottom of the market for Spanish financial assets in 2012, gives ten reasons to be bullish about the new development business in Spain. For argument’s sake, I challenge each reason.
In a paper “Ten macro reasons to invest in real estate development (pdf in Spanish)” de la Torre lays out his case to be bullish, starting off by asserting that “The new development market could increase by a factor of nine in the next few years, a market with huge potential in which few well-financed players have been left standing, and they will be the ones who benefit the most from this opportunity. This analysis presents the ten most obvious macroeconomic reasons why the new development market will benefit from a very positive cycle.”
1. House prices are rising.
2. Land prices are rising.
3. Housing is now more affordable.
4. Mortgage lending is rising.
5. Home sales are rising.
6. Unemployment is falling.
7. The new homes inventory is shrinking.
8. The new development market has room to grow by a factor of nine.
9. The population is rising, not falling.
10. Consumer confidence is rising.
ON THE OTHER HAND….
1. Rising house prices. It depends which figures you look at (see the latest SPI HPIT).
2. Land prices are rising. True, but only where there is a market for land; everywhere else there are no transactions, so no change in prices.
3. Housing is more affordable. True, but only because interest rates are unnaturally low. If you look at house prices as years of gross household income, they still look high.
4. New mortgage lending is rising. True, but from a very low base, and overall mortgage lending is still falling.
5. Home sales are rising. True, but from a low base, and the market is still very depressed by historical standards and for a country the size of Spain.
6. Unemployment is falling. True, but many of the new jobs are precarious and don’t inspire the confidence needed to take out a mortgage and buy a property.
7. It’s true the new housing inventory is shrinking, but slowly, and in many areas the glut is still overwhelming. Overall, there are more than a million homes on the market, close to four years of supply.
8. New development has big potential, but only if demand grows enough, which depends on all the other factors in this list.
9. Population increase? According to the latest estimate from the National Institute of Statistics (INE) the population is falling, down by 0.16% between 2014 and 2015, mainly driven by an exodus of foreigners.
10. Consumer confidence is rising. This is true, but judging by the comments to the article at El Confidencial, not everyone is infected with this confidence.