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City of Madrid is running out of new-built stock

The Spanish property consultancy Foro Consultores, has recently released its report with the Madrid property finder about the Madrid housing market in new developments (2007-2011). The main conclusion of their analysis is that new-built property stock in Madrid was reduced by up to 50% between 2007 and 2010. The new-built property stock decreased from 10,000 units to just slightly more than 5,000 units in 2010.

Such an ease of property stock in Madrid is in conjunction with an average of 19% price reductions in the capital.

Average prices in 2010 were €3,952/sqm, according to Foro Consultores


Unlike other Spanish cities, 9 out of the 21st districts of Madrid city have experienced a drop in the number of houses on the market. This may be attributable to the lack of urban land in the Spanish capital and the high demand for housing.

According to the report, property demand in the 2000’s was motivated by different factors:

  1. Immigration from 1998 to 2006 (an increase from 69,000 to 500,000 immigrants between 1998 and 2000 in Madrid alone).
  2. First-time buyers born in the 1970s and 80s, reached an age at which they were able to leave their parents’ home and buy a property on a mortgage basis, during the credit expansion of the 2000s.
  3. The high rate of divorce and family fragmentation increased the demand for housing.

The critical figures in the analysis are:

  1. So far in 2011, a total of 376 developments (16,870 units) have been counted on the market in the city of Madrid (excluding social housing).
  2. Between 2007 and 2010, the number of properties on sale on the market was reduced from 16% to 30%. This is a consequence of a reduction in new developments alongside with the rhythm of sales.
  3. The districts of Tetuán, Puente de Vallecas and Carabanchel, concentrate 39% of the new developments.
  4. Vallecas and Arganzuela are the districts where new developments on sale, are being reduced, due to high demand and prices adjustment.

3 Bedroom Flats Are Back On The Market

 

82% of the new developments build in 2007 were 1 and 2 bedroom flats built outside the city centre, in contrast with 3 bedroom flats which have been traditionally concentrated in the heart of the city – the oldest part of the capital, where, once upon a time, large families used to live in bigger homes. During the property boom period of 2004-2007, the market was replete with new 1 and 2 bedroom flats.

But the trend has changed in 2001 because the buyer has become ‘king’. During the boom, the developers were driving the market. Smaller units (studio flats and 1 or 2 bedroom flats, for example) meant more sales and so more profit-margin for developers. Now the situation is different. According to the Consultores report, flats with 3, 4 and even 5 bedrooms are becoming more affordable.

According to the graph, in 2010 and 2011 3 bedroom, 4 bedroom and even 5 bedroom flats have increased in percentage

Average Prices

 

Prices in 2011 range between €77,900 and €3,381,000 for Madrid. The average price is €332,446. Regarding the price in €/sqm, the average is 3,952 €/sqm.

The report highlights that prices have been reduced to their lowest so far because financial institutions have played a key role in the market and they have reduced the prices in order to sell more properties. Financial institutions are playing a major role in joint-ventures with developers, pushing up sales by offering up to 84% Loan To Value (LTV) in 2011.

Chamartin and Salamanca districts are the urban areas in Madrid that have experienced the largest price drops since 2007, despite the fact that these are still the most expensive districts in Madrid. On the other hand, the smallest price drop since 2007, has been in the Arganzuela district, at 6%.

The Stock

New development stock has decreased since 2007 by 30%: 9,874 units (2007), 8,959 (2008) and 5,146 (2011). The largest unsold stock by district is in Latina (44%) and Puente de Vallecas (43%). Districts with the smallest unsold stock are Fuencarral-El Pardo (17%) and Usera (19%).

In conclusion, Foro Consultores estimates that with the current stock quantity and slowness of sales, supply will come to an end in 16 months, assuming no new developments hit the market.

As a website which identifies strong property market opportunities, The Spanish Brick’s position is that even in a tough economic climate like in Spain currently, everything relates to market prices and consumer demand. Madrid is a unique case with different micro-markets and a constantly growing demand. See this article about demographic trends in order to understand how strong Madrid is as a market for property investors.

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2 thoughts on “City of Madrid is running out of new-built stock

  1. EnglishDragon

    Doesn’t all this depend on people being in work to buy the houses? I understand unemployment is actually falling in Madrid right now – but will that continue?

    Reply
  2. DT&K

    Hi EnglishDragon. Good comment. Yes, unemployment is a key factor but not the only one. Average unemployment rate during 1Q/2011 in Madrid city stands at 13.8% . Which is the higuest of the last 5 years (at least). When we talk about property market, I prefer to say that the employment rate is 87.2% .

    The real fact is that there is a shortage of new builts in the city and potentially the demand will increase as the population grows via migration (pls read article about demographic trends).

    After reviewing the article about shortage of new-built stock, I understand that the Madrid city market is a well balance one and there is not similar market as it is in Spain.

    Reply

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