Despite the uncertainties, the Spanish economy continues to enjoy good health. The strength of consumption, the increase in household wealth, household deleveraging, the reduction in unemployment, the increase in wages, the reduction in public debt, and the strength of exports, support a GDP growth forecast that Funcas places for 2018 at 2.61GDP3T and for 2019 at 2.21GDP3T.
The Spanish economic cycle is robust and prolonged, although signs of a slowdown have emerged in recent weeks. In any case, this does not slow down the expansionary cycle of the real estate sector, because investment in construction is a much slower process and prevents signs of a slowdown from affecting the cycle.
The interest rate environment also continues to favour mortgage lending, which stimulates demand. As monetary policy normalises, this will become less attractive, but the level of core inflation (without the volatile energy component) means that, in practice, inflation is still at very low levels, which delays the possibility of a rate hike.
Therefore, this optimistic scenario supports the good business growth prospects for the real estate sector, which benefit developers, builders, real estate consultants, intermediaries, the public sector, and others. Entities that perceive that real estate assets will continue to rise in the short and medium term, due to increased demand, the scarcity of supply, and the abundant liquidity in the market. And they want to take advantage of this situation to benefit their business models.
Housing
The figures corroborate these expectations of the players in the sector. For example, the figure for new housing starts in 2018 shows that supply continues to be lower than demand. This year, just over 95,000 new homes are expected to be built, compared to the 800,000 that came onto the market in the years prior to the bursting of the bubble.
The "mortgage effort", i.e. the percentage of household income spent on mortgage repayments, has fallen from i.e. the percentage of household income spent on mortgage repayments, has fallen from 60% to 30%. Because the data show that household wealth has risen, driven by household deleveraging, low interest rates, and rising wages.
Operations
In addition to housing, the real estate sector presents investment opportunities in a variety of sectors, through small, medium and large transactions. These deals are suitable for a wide range of investors, from retail to large institutional investors.
Record investment figures in 2017 already reflect this reality. According to Jones Lang Lassalle, the almost 14,000 million euros disbursed in real estate investment in Spain were distributed in the following sectors: 3,900 million in retail - retail premises and shopping centres; the same figure in hotels; 2,200 million in offices; 2,100 million in residential - residential buildings and land; 1-350 million in logistics - industrial warehouses and similar; and 560 million in alternative assets, especially student residences.
The consultancy firm CBRE estimates that these figures will be exceeded in 2018, which could reach 16,000 million euros, taking into account that at the end of the third quarter the figure had already reached 13,385 million euros. An investment volume coming mostly from international investors, 58%, compared to 42% from national investors.
Corporate Real Estate
In addition, the sector is witnessing a boom in corporate transactions by large international industrial and financial investors. This is because it is very profitable for large investors to take control of listed real estate companies. This is because the difference between the cost of buying shares listed at levels below their target price, and the gains that the buyer obtains from the growth of his business, is substantial.
Specialised communication
In this scenario, communication has to play an essential role for the main players in the real estate sector. Because it will be the tool that will make the market and potential investors, both private and institutional, aware of the business levers of the entities in a sector which, like the real estate sector, is going through a frankly positive phase of growth.
Communication should be specialised, and should target audiences interested in the possibility of maximising their wealth by incorporating real estate assets, for investment or consumption. Institutions will need to publicise the operations, sectors and real estate assets on which their business models are based, in order to reinforce the perception of the solidity and stability of their growth.
Communication which, finally, will serve to position with differential messages the entities that want to channel this enormous flow of national and international liquidity which, favoured by the economic environment, is attracting the real estate market.
Javier Ferrer
Communications consultant specialising in the world of investment at Proa Comunicación.