New figures from the Spanish Government show how slowly the new homes glut is being absorbed by the market, and begs the question will it ever find a buyer?
Every year since 2009 the Spanish Ministry of Public Works (Fomento) has been counting the number of never-sold new homes in Spain in an effort to quantify the new build inventory that has such big implications for the Spanish housing market, banking system, and economy. All those homes tie up a lot of capital that reduces bank landing and increases risks in all sorts of ways. You can understand why the Government wants to keep an eye on it.
The latest figures just published by Fomento for 2018, illustrated by the chart above, reveal that the Spanish new homes glut shrank by just 4% last year, from 476,938 to 459,876, a decline of just 17,000 new homes sold.
The chart above makes dramatically clear how the glut exploded in just four years, from 195,184 in 2005 to peak at 649,780 in 2009, and increase of 454,596 or 233%.
But it turns out to be much easier to build new homes in a real estate boom than it is to sell them during and after a crash. The glut of homes built in recent years that have never found a buyer has fallen little and slowly, down by just 189,904 units or 29% in nine years. In other words, a decade after the Spanish real estate crash, the new homes glut is still 70% of what it was at its peak in 2009.
The next chart shows annualised change in the glut since 2005, a year in which it increased by 90%. Since 2010 the glut has been digested by the market very slowly, with a maximum decline of 7% in 2012.
By autonomous region, the glut is biggest in Andalusia (15% of the total), the Valencian Community (19%), and Catalonia (16%). There is also a sizeable glut in Madrid (9%) and Castilla-La Mancha (9%). The Balearics are home to just 2% of the glut.
By province, the glut hot-spots were Alicante (9% of the total), Barcelona (8%), and Castellon Costa del Azahar (5%). The glut shrank the most last year in Malaga Costa del Sol down by -24%, -10% in the Balearics, and -4% in Barcelona, Girona Costa Brava, Alicante Costa Blanca, and Murcia.
Just think how much money is tied up in all those homes that were built during the boom years but never sold! And how much is still being spent on maintaining them. A lot of the glut investment has been written off over the last decade, and a Spanish ‘Bad Bank’ called the Sareb was created to manage a big chunk of the glut portfolio and its associated capital destruction, but these figures show there is still a huge problem.
And the problem is that much of the glut is located in places where there is little or no demand, places like the massive Marina D’Or development in Castellon Costa Azahar. There is no glut in hot markets like Barcelona city, Madrid city, and the Balearics, where if anything there is an acute shortage of new homes for sale. As much as anything the new homes glut is a location problem.
Homes that haven’t found a buyer in a decade will probably never find one. In the long run it would be cheaper just to knock them down now.