The developers halted the construction of dozens of new homes last year due to the impact of the rise in the cost of materials and interest rates. "Before the war in Ukraine we sold seven or eight new residential buildings every quarter, but in the last quarter of 2022 only two: there are no new projects," says Guifré Homedes, general director of Amat Immobiliaris.
During the presentation of the Real Estate Market Report, Homedes explained that "developers are clear that there is no way to raise the price of apartments: either they sacrifice their margin or cancel the project." For this reason, given the rise in materials and energy, “the projects that were advanced and under construction were finished, but those that were in the pre-sales phase were frozen and they told us not to sell more flats. Some were resumed in the last quarter of 2022, but many others were canceled, even having pre-sales, and the developer has returned the money to those who had bought off-plan and sold the land.
Developers have slowed down especially in the last quarter, trapped by the double impact of the rise in interest rates: on the purchasing power of their clients and on their own costs, due to the increase in financing costs.
"In the last quarter the demand for purchases has dropped," acknowledges Homedes. Above all, in the purchase of the first home, in which a lot of bank financing is needed, the uncertainty about what the interest rates will be when you can notarize it, perhaps in two years, greatly affects decision-making. People prefer to wait until the promotion is advanced and is therefore closer to the time of purchase”.
And the fall in the rate of pre-sales, in the promotions that have been maintained, slows down the works even more, since the bank requires that at least half of the homes be sold off-plan to grant bank financing. "The promoters are nervous because they can't close the financing," acknowledges Homedes.
In many of the projects that have been maintained, the developer has chosen to reduce the surface area of the homes in order to pass on the increase in costs while maintaining the nominal price “because there is no room to raise it. We are seeing one-bedroom apartments again, like in 2008”.
According to data from Amat Immobiliaris, the average price of a new-build home has risen 65% in Barcelona since 2003, 59% in Sant Just Desvern and 72% in Sant Cugat, which are the cities where they have offices. . "And then the mortgages were cheap and the salaries are similar," he recalls. The promoters have also chosen to give priority to the promotions of luxury flats. “The promotions in which sales are best are those with apartments of more than one million euros. They are families that depend less on bank financing, so that they gain weight in sales in times of uncertainty”.
The rise in rates has especially penalized young people, and according to data from Amat Immobiliaris, those under 40 years of age represent only 40% of home buyers, and it is a percentage that is going down. “Replacement buyers dominate, who already have a home and sell it to provide a down payment, so they need less mortgage and are less affected by the rise in rates,” he points out. In recent months, he adds, pre-sales have also risen that are not registered because the bank finally does not grant the mortgage.
Guifré Homedes recalled that "many of the canceled promotions had been waiting for a license for more than twelve months" and would have gone ahead if the Administration had met the deadlines. “In canceled projects, the promoter, who had already invested in the project, loses as well as the buyer. Although they have returned the money with interest, he has lost access to the most favorable financial conditions that existed then ”.
