Last year, developers halted the construction of dozens of new homes due to the impact of rising material costs and interest rates. "Before the war in Ukraine we sold 7 or 8 new housing buildings every quarter, but in the last quarter of 2022 barely 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 flats: they either sacrifice their margin or cancel the project". For this reason, faced with the increase 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 we were told not to sell any more flats. Some were resumed in the last quarter of 2022, but many others were cancelled, even having pre-sales, and the developer has returned the money to those who had bought on plan and sold the land”.
Developers have particularly slowed down 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.
"The last quarter saw a drop in purchase demand - Homedes admits -. Especially 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 deed it, perhaps in two years, greatly affects decision-making. People prefer to wait until the promotion is advanced and, therefore, the moment of purchase is closer.
And the drop 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 are sold on plan in order to grant bank financing. "The promoters are nervous, because they cannot close the financing", admits Homedes.
In many of the projects that have been maintained, the developer has chosen to reduce the surface area of the homes to be able to have an impact on the increase in costs and maintain the nominal price "because there is no room to raise it. We are seeing one-room flats again, like in 2008".
According to data from Amat Immobiliaris, the average price of a new home has risen by 65% in Barcelona since 2003, by 59% in Sant Just Desvern and by 72% in Sant Cugat, which are the cities where they have offices. "And then mortgages were cheap and salaries are similar", he remembers.
Developers have also chosen to give priority to the promotions of luxury flats. "The promotions in which sales are better are those with apartments for more than one million euros. They are families that depend less on bank financing, so they gain weight in sales in times of uncertainty."
The rise in rates has particularly penalized young people, and according to Amat data, people under 40 represent only 40% of home buyers, and it is a percentage that is going down. "Replacement buyers dominate, who already own a home and are selling it to contribute to the income, so they need less mortgage and are less affected by the rise in rates", he points out. In recent months, he adds, there has also been an increase in pre-sales that do not end up being deeded because the bank ultimately does not grant the mortgage.
Homedes recalled that "in the case of many of the canceled promotions, they had been waiting for a license for more than twelve months" and they 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 does the buyer. Even if the money has been returned to him with interest, he has lost access to the most favorable financial conditions that existed then."
