In a recent interview, the president of Gestilar, a developer from Madrid, Javier García-Valcárcel, spoke about the growth that the company has had in recent years, which has managed to build more than 3,000 homes.
The director pointed out that stability is a key factor for the sector to maintain the good health it currently enjoys, and it is clear to him that the real estate sector is today fully prepared to overcome future changes in the cycle thanks to the large institutional funds.
How is activity in the residential sector behaving in the first half of the year?
We are growing in sales compared to last year, but we have detected that the pace of sales is stabilizing. We are no longer seeing the big spike that occurred after Covid. This is a very good and positive thing for the sector, since spikes in any economic activity are not good. We prefer to always have an ascending linear activity, than an activity of ups and downs, since this situation is never easy for the structure of the company.
What is the reason for this stabilization in sales?
As a result of the Covid, the trend and the type of housing where people wanted to live changed. In addition, buyers accumulated a lot of savings and this led to an increase in sales. Now this stock has been consumed and external factors such as inflation have been added to this.
Can inflation be a major brake on the sector?
The truth is that we find ourselves in a scenario that until now we had not experienced and from the sector we must be cautious when raising prices. The population, due to inflation, will have less savings available for the purchase of a home and at the same time will increase its financial effort to pay the mortgage, so we find that the price of housing will be capped. In addition, the price of land, except when there are structural crises, never goes down and on the other hand, the production process of construction, which represents from 20% to 50% of the price, has risen between 15-20%. The equation is really complicated.
Are we in a cycle change?
I think that despite this situation it will be extended with stable prices. I do not see a change of cycle in Spain. There is a lot of intention to buy and there is little supply. The only thing is that you have to be careful not to increase the selling prices. In addition, the sector currently has the backing of large institutional funds, which have significant long-term capital capacity and strength that provide a lot of stability to the sector.
Aren’t you afraid that this purchase intention could change with the rise in rates?
A rate hike always affects the real estate sector and not always positively. In the case of companies, this increase in the level of the production process does not affect us excessively because it is a very small part of the costs. Much more worrying in general for the sector is the rise in construction costs. Although, it is true that a rise in rates can affect the financial effort of the final buyers and also in the case of Build to Rent, it could make the funds ask for more profitability in these operations and that can complicate the agreements.
Have you detected that the rise in construction costs affects the investment appetite of the funds for rental projects?
So far we have not seen a lack of appetite, quite the opposite. The BRT in Spain started a few years ago and therefore one must be very careful with the projects. If there begin to be significant cost deviations or breaches of contracts, obviously the funds will take note and based on that they will act asking for a different return. But now everything runs normally.
Are you negotiating more rental agreements with new funds?
We currently have projects that add up to 2,000 units and that will be delivered in their entirety during the first quarter of 2024. In addition, we are constantly in negotiations for BTR land and we are also interested in the affordable housing that the Madrid City Council is going to offer. In all cases we would always go hand in hand with a partner. We are currently negotiating an important operation in Palma and we are also seeing volume operations in Levante and Andalusia.
What investment in land purchase do you have planned for this year?
We have a land portfolio for more than 3,000 units, of which 1,800 are under construction. In 2021 we have broken an investment record with 130 million and right now we are studying land for a value, as a whole, higher than last year’s figure and that would add up to 1,000 homes. But they are each in different phases so we cannot give a specific figure.
Source: El Economista