Neinor Homes is the first housing promotor to return to the stock market 10 years after the crisis. Its CEO, Juan Velayos, recognises that many things have improved since then: Four years ago no housing was being built, and now 90,000 units are being built”. But he admits there are deep rooted problems in the sector: “Spain is seriously bad at generating supply, we are paying far more for apartments than we could do if there were transparent criteria.”
Q: They say that there is no bubble market and that, if there is, it is very different from the one that hit the ceiling 10 years ago. What do you think?
A: There are three reasons why we should not be worried. One is supply and demand: Spain builds 80-90,000 housing units a year and I believe, conservatively, Spain needs over 100,000. Therefore there is till insufficient supply to cover the demand, and this is one of the reasons prices are rising. The bubble appears when there is no balance between supply and demand and prices keep rising. While supply and demand are out of balance prices keep rising, which is when speculation can appear. But in principle this is a golden rule which should leave us unconcerned. The second reason is the existence of own funds, unlike what happened in the past. When someone else is buying the drinks you order another one, but when you are paying you think again. When you are putting in your own money you think about where you are investing and this is healthy and how the sector should grow. You have to have your own funds to buy land. And the third reason are the mortgages: while the criteria for granting mortgages to buy houses are healthy you are not inflating demand. If the banks start giving money for the house, the dog, the car and the holidays, get worried. If the banks are giving you money but you also have to put in part of your savings, it keeps demand much more in balance. In other words, you don´t generate demand which cannot be paid for. With these three criteria we do not need to worry.
Q: In 2010, before the creation of Sareb, a director of OHL told us that half of the empty housing which then existed in Spain would never be sold and it would be better to blow them up …
A: There are hosues for which there is no demand. If you look at the map of Spain, and specifically, where the empty housing is, you will see it is in areas with no demand; on the other hand in the áreas where there is demand no supply remains. Therefore, it is possible that this housing where it is difficult to see demand will not be sold, now or ever. I don’t know if it will have to be knocked down, but it has little future.
Q: There’s been lots of talk about the shift of demand towards renting. Could this end reverting to a greater interest in ownership?
A: The rental market is an even more granular sector, if possible. There are many atomised small owners who rent out at whatever price they can secure. As there is no rental supply prices will rise to wherever demand allows, to the point where the demand can no longer pay them. This helps us and is good news. In the end if a mortgage costs less tan renting we will find many buyers who between renting and getting a mortgage, if the monthly quota of the mortgage is much lower, will prefer to buy.
Q: You spoke about generating supply. Is there a lack of construction? Are we going to enter a new phase of construction or will we continue working with the existing stock?
A: The cranes have returned and have done so with great intensity. Spain was building nothing four years ago and now is building 90,000 units. The intensity of the activity has recovered quickly. This has meant that the installed capacity, not of the construction sector, there are many good constructors in Spain, but of the trades that surround construction – the subcontracts that lie behind – that installed capacity, is not performing with sufficient speed, and is putting pressure on the construction sector. It is another of the enormous challenges we face. In the end there are the main actors: the administrations, the promotors, the owners of the land, the constructors and the chain of subcontractors that lie behind. Another of the major challenges in industrialisation is to change the ways of working among these actors. They have always been environments with ittle collaboration, very much one against the other, and that is changing. Now there are new systems, technology and more corporations more collaborative in the past. If we work all together we will transform the sector. What we cannot do is continue turning the back on each other in our work.
Q: Another sign of recovery of the sector is the return of developers to the stock market. Is there room for more?
A: The property developer sector has an important impact on Spain’s GDP. It impacts the generation of wealth. It is important to households because it generates significant direct and indirect employment and to administrations and town halls because it generates tax incomes. Therefore it is logical that a sector so important to the country should be represented in capital markets with a similar percentage as its contribution to the economy. And that means that there should be a space in the Spanish stock market for property developers. This is healthy and is good news. It is also good news that the property developers are opting for a more institutional environment, because institutional environments have good sides and bad sides but among their many advantages is that they are more disciplines, transparent and predictable. And that we are ever better represented in the stock market as a sector is good news. As long as we don´t make up the 6, 8, 10% which we contribute to GDP I believe there is room for more developers. They will be welcome.