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''Today, we housing developers must compete with a robust rental market and banks in a rush to sell, so we face the unprecedented challenge of getting customers excited about a different product,'' said Juan Velayos, CEO of property developer Neinor Homes, at the latest Matins ESADE talk sponsored by Bluecap in conjunction with Spanish daily La Vanguardia.
As regards the decision of the US fund Lone Star to enter Spain’s housing development sector by buying up Neinor Homes, formerly a subsidiary of Kutxabank, Velayos believes that, in the wake of the crisis, ''three successive windows of opportunity have emerged in the real estate sector: SOCIMIs, servicing companies and, more recently, housing developers.''
According to Velayos, there are four reasons for the upsurge in housing developers: ''Spain prefers home ownership; it currently has better macroeconomic conditions than its neighbouring countries; the percentage of family income needed to repay a mortgage has fallen to pre-crisis levels; and the banking sector has realised that the mortgage business depends on volume so lots of mortgages must be granted. This it why Velayos predicts that Spain will experience what happened in the UK and US in 2002 where, “property developer appraisals increased threefold.''
Neinor Homes now has 10,000 homes and €1,000 million of developed land in Madrid, Barcelona, the Basque Country, Costa del Sol and the Balearic Islands. But Velayos sees this as just the beginning. ''The real challenge is how an industrial model based on the three cornerstones of institutionalization, customer focus and the transformation of a product that has not changed for decades, can be applied to housing development'', in which respect Velayos highlighted the transformation achieved by the Neinor Lab ideas lab.
Transformation of the property sector
The CEO examined the factors underpinning the transformation of Spain’s property sector, beginning with demography. Velayos explained that despite falling birth rates in Spain, ''the upsurge in single-parent families, longer life expectancy and the international market yet to be exploited'' are all attractive opportunities.
Another natural development is the fact that promoters no longer rely solely on banks for finance and are, therefore, ''more cautious when managing capital from their own equity or institutional funds, and must act as regulators, which helps prevent more property bubbles.''
Juan Velayos predicted an increasingly concentrated sector, despite the on-going presence of local and national companies, and also a paradigm shift ''from the development of land, which in Spain has traditionally called for good contacts, to buying developed land and being very careful about the margins, costs and schedules of projects in order to safeguard returns.''
Finally, the speaker emphasised the sector’s traditional disregard for its customers, ''despite the fact that buying a home is one of the biggest decisions they will ever make'' and pointed out the importance of remedying this from a business viewpoint because against a backdrop of smaller returns, the ability to understand demand and tailor a product to suit it will make the difference between success and failure.