The number of new developments in Spain is falling, as the country tries to address its real estate surplus. Property appraiser Euroval noted that developers are now unwilling to begin construction on fresh projects, with new development numbers in 2012 equating to just 15 per cent of 2011 levels.
It is estimated that just 50,000 new houses were completed in 2012, compared to just over 500,000 in 2001. This is a fall of 25 per cent throughout the year, which, while vital to help demand get in line with supply, is damaging for the construction sector. The situation is unlikely to change any time soon either, with new building permits reaching record levels. Since 2001, the number of projects granted permission fell by a massive 80 per cent.
Spain is currently concentrating on ridding the country of its property surplus, including distressed real estate held by the country’s bad bank. However, Euroval has blamed this attitude on the drop in demand for property, writing the bad bank “reinforced the idea that there was going to be a sell-off of buildings, which resulted in a drop in demand”. They also believe raising the value of added tax rates on new homes has put further pressure on house prices, which are continuing to fall.
Nevertheless, analysts cannot avoid the saturation of the market, despite the impact halting the construction of new builds has had on the construction industry. What’s more, there must be an acknowledgement that interest from foreign buyers cannot single handedly reinvigorate Spanish real estate while domestic demand remains low because of widespread unemployment.
Spain’s prime minister Mariano Rajoy has also recently acknowledged the challenge job losses are posing to the country in a candid interview with the Financial Times. However, he has confidence that a raft of labour reforms ushered in by his government will turn things around. Under the measures, it is easier for businesses to depart from collective wage agreements, promoting flexible dealing.