Giants such as Arcano, BNP Paribas, Merlin, Colonial, Lar and Aedas Homes explained how they see the present and future of the sector.
The last episode of 2022 filled the market with doubts. With inflation at record highs, the first interest rate hikes in more than a decade and an energy crisis, many predicted an economic recession and its strong impact on the real estate sector.
Fortunately, this scenario does not play out as expected. Although uncertainty still encourages caution, and after last year's spectacular results, a correction of property valuations and a decrease in investments and the number of transactions are expected, the real estate giants are already painting a less pessimistic picture for the coming months.
Companies such as BNP Paribas, Arcano, Colonial, Merlin, Aedas Homes and Lar expressed this at the 5th Iberian Reit & Listed Conference, held in Madrid and organized by The European Real Estate Association (EPRA) and Iberian Property.
One of the most encouraging comments came from Ignacio De La Torre, a partner and chief economist at Arcano Partners, who said "the worst is over. The storm is over." During his speech, he recalled that inflation was already falling and wages were improving, and stressed that according to forecasts "wages will already rise above prices in the summer, so economic growth will return."
On the other hand, he expressed confidence that Europe would avoid recession, although activity would decrease, and predicted that interest rates would soon reach the ceiling and in the medium term, when inflation calmed down, in the euro zone they would fall to around 2.5%. According to the economist, this means that "structural interest rates, which are important for the real estate sector, will remain at a low level on a global scale for the next 10-20 years. This will not change due to the demographic trend" - he stressed.
The housing sector is not seeing a fearful turnaround in the market, at least in the case of new construction. According to David Martínez, CEO of the developer Aedas Homes, "we had an excellent year 2022 in terms of deliveries and metrics. And the prospects are very good as the imbalance between supply and demand is maintained. there is still a lot of work to be done, and I see a positive future both in the short and long term.
Another of the messages sent by some of the major players in the real estate market is that we are in a period of investment opportunities... Primarily in listed companies of the sector.
As Dominique Moerenhout, President of the European Public Real Estate Association (EPRA) argues, ?Major Spanish Real Estate Trust Funds (REITs) perform well in terms of rents and occupancy. Inflation has a greater impact on income (which they receive through rents) than on operating costs which is positive for the sector. He also added that "the sector is very well positioned to absorb interest rate hikes" and his forecast is that "in 2024, investors will return to taking positions in the REIT sector as the economy starts to grow again." Behind his theory is the steep discount at which major European REITs are traded, averaging over 40% of their net asset value (NAV). In other words, their market value is well below the value of their portfolios. "There is a disconnect between stock prices and company performance. And they are a buying opportunity because of this discount. It is now that we need to invest to be positioned when the market recovers. If we wait, it may be too late," he said.
David Martínez applied the numbers to the specific case of Aedas Homes as an example of the same discount that pulls listed companies. "In 2017, when we went public, we were almost a start-up and we were trading at EUR 31 per share, whereas now we are at EUR 15 per share and paying EUR 100 million in dividends."
Ismael Clemente (Merlin) admitted that investing in mutual funds in the real estate market is very common among private individuals in countries such as the USA. Unfortunately, in Spain "many people don't understand this" and stressed that "the listing is always questioned. It's almost a heroic act." Despite the criticism, the sector hopes that the trend will be reversed in the future. "We have to be patient. The market for real estate purchases will come" - summed up the president of Coloniala.