Wednesday, May 07, 2008

650,000 Reasons Why The Builders Are Having Problems

The lack of reliable information on what is going on with the construction industry here in Spain can be attributed largely to the fact that the news is not good. When things were going well we were being overwhelmed with statistics about homes constructed and sold. The industry is now desperately trying to play down the evidence of a decline in prices whilst the statistics on the falling number of sales and mortgages granted tell their own story. El País at the weekend came up with some extraordinary figures, they did an estimate based on the difference between the number of dwellings built since 2005 and those registered by their new owners to come up with a figure of 650,000 unsold homes around the country. That is just new building, what the Spanish call “second hand” dwellings are not included in this estimate.

This total represents about one dwelling for every 70 inhabitants in the country, and if it is near to the truth then it makes the optimistic industry spin that the worst will be over by next year look hopelessly misplaced. With a stock of unsold properties this big it is hard to see anyone engaging in serious building projects to add further to the pile of the unsold. As if it didn’t sound bad enough, this total can be expected to increase further because of the numerous building projects started before the end of the boom but that have yet to be terminated. There are regional variations, El País highlighted the case of Castilla - La Mancha saying that 68.5% of the new properties built there since 2005 are still unsold. The high figure in this region could be due to the attempts to convert parts of it into the new dormitory towns of Madrid. The effects on employment are already being noted, as are the early signs of construction companies having liquidity problems. Who is going to argue, looking at these figures, that the worst has already passed?


Colin said...

Graeme, With a lead time of 2-4 years for blocks of flats, the increase in the stock simply can't be stopped. I agree that we are very far from seeing the bottom of this trough. See here for informed views and some statistics:-

Graeme said...

Assuming that the companies have the money to finish building what they have started.

Colin said...

Well, some will have and others won't. But the numbers of the former may increase if the government responds to the suggestion that the pension reserve is raided. And who would bet against this happening? More-desperate-than-admitted times call for even
/ever more desperate measures.