Borja García-Egotxeaga is in charge of Neinor, one of the largest housing developers in Spain. The group has just launched an ambitious investment and shareholder return plan with which it also aims to build nearly 10,000 homes in the next five years. He does so while the country enters fully into the debate on access to housing and suffers the effects of rising interest rates.
Where is Neinor going?
The company's strategy for the next five years is based on four pillars. On the one hand, we have our promotional activity as our number one priority. A second pillar is the distribution of dividends. A third pillar rests on co-investment. The fourth consists of crystallizing the value of our rental building platform.
What will the investments be like?
We will dedicate 1,000 million euros in five years to purchasing new land, which is our raw material, of which 500 million come from the cash flows generated by the company, and the other 500 million, from co-investment.
There has been a bet on the dividend.
The last five years have been successful, but at the shareholder level the same cannot be said because we are trading at a significant discount. That paradox occurs. We want the shareholder to be compensated and attract shareholders to the company. We are going to establish a dividend plan of 600 million euros in five years. That money does not come from debt, but from our own balance sheet. The company works with a debt ratio of 25% over the value of assets. It is very healthy. At this moment Neinor is the Spanish listed company with the highest dividend distribution of all companies. The company will achieve between 15% and 20% profitability in 2023, 2024 and 2025.
What will the co-investments be like?
We find family offices, investment funds and insurance companies that would like to enter Spain to build, and we could be the vehicle. We have signed two alliances, one with Axa and another with Orion, and we are in talks with four or five more. We are thinking about a minimum investment ticket of 50 million. With the 1,000 million investment we will be able to buy land for about 10,000 homes.
How do rate increases affect the activity of Neinor and the sector?
In the sector as a whole, it makes mortgages more expensive and makes access to housing and financing more difficult. Financial institutions are showing a lot of muscle, they are very solvent, they have significant amounts of capital and they are willing to grant mortgages and work. I do believe that there will be an impact on second-hand, which will go to pre-covid figures, but I do not think there will be a significant impact on the construction of new housing.
And how will prices behave?
When the year 2023 began, all the forecasts were that they would fall by 5% or so. We said that we believed there would be price stability. In Spain the supply is very small and approximately half of the houses that have been needed are being built for more than ten years. This is generating a lack of stock in all the main cities and a very important gap between demand and supply. Spain is a country in which the price of housing since 2008 has not had an exponential increase at any time. It was stopped for a few years until 2014 2015 and from then on it began to grow at a rate between 4% and 5% annually. There is important stability in prices. The debt level of Spanish families has been drastically reduced in the last decade and so has that of developers. Spain has the highest number of Social Security contributors.
How is the problem of access to housing solved?
Now I do not speak as a promoter, but as a father of three teenage boys. I think we have to solve it together. It is very positive that all political groups are with this same message. It has had a huge impact on Spanish society and I believe that whoever governs is going to try to solve it. I think it can be solved from many areas. An important reflection must be made at the country level.
Can the 180,000 affordable homes that the Government talks about be built?
Of course you can, but here you also have to be cautious. It depends a lot on the locations and locations. The housing problem in Spain is actually a problem of access of certain social strata to housing in certain urban centers. The recovery of the housing market in Spain was very asymmetrical, and the needs are very asymmetrical.
Can they collaborate with Sareb's affordable housing plans?
We are working in the metropolitan area of Barcelona to build 4,600 social housing. Of course we contemplate collaborating on affordable housing plans. There is the part of the owner of the land, the company that will transform the land into housing and the rental operator, and behind it there is a fund that supports the financial muscle. They are funds that invest in housing and have a profit motive. We must attract these funds, which will ask for profitability and guarantees. Once they feel welcome, they will come and invest. They are a fundamental piece.
What do you think of the Housing Law?
A broader consensus would have been important, since most of the powers have been transferred. A national Housing law would have to aim to solve the problem on a national scale. In taxation, a lot can be done to help young people. I don't know if a kid has to pay 25% taxes on a home, which is what you pay for a luxury item, when we are saying that there is a huge problem with young people. I would have liked to have also addressed flexibility in urban planning and everything related to the legal security of urban planning, which is a horror and works frankly poorly in Spain.
What do you think of rent control?
It is something that is done all over the world. In Spain we were doing it for many years. Franco had it limited with the old income, which greatly discouraged the model. There are many more models and not all of them have to be so harmful. There is plenty of international experience. The funds that come to Spain need to see how it is structured and how it is going to work. The price limitation does not add up, but it is not a tragedy either. A 2020 Bank of Spain report shows that, in the short term, control measures may be welcome, but if they are perpetuated there is a decrease in supply, less rehabilitation and an increase in roguery. I think we have to wait to see how it is applied to draw conclusions in four or five years.
Do you see differences between Madrid and Barcelona?
In general, both cities maintain many similarities. Our way of working is the same in both cities, we are delighted to do it. In both, after the 2008 financial crisis, urban planning practically stopped. More housing is going to be needed. I am optimistic, I believe that it will be looked at and solutions will be sought.
