The construction sector in Spain is one of the strongest in the Spanish economy. It is so closely linked to the growth of the Gross Domestic Product (GDP), and as long as it remains around 3%, it could be an opportunity to invest in stocks from this important business segment. This is further enhanced by the fact that Spanish equities offer a highly diversified portfolio, with companies from such different lines of business as Acciona and ACS , to name just a few examples.
If the Spanish economy continues to grow this year, it's the perfect time to consider investing in some of the stock market offerings available on the financial markets . Among other reasons, these companies have higher potential for appreciation than other equity sectors. They present business opportunities that could be very attractive, allowing you to grow your savings with greater assurance of success. This is one of the benefits that construction companies can offer you during 2018.
These values ​​are also characterized by their cyclical nature, as they depend on the economic cycles in which they are embedded. Consequently, they are more volatile than other types of stocks. They rise more sharply during periods of expansion, but conversely, their declines are more pronounced during economic recessions. This is at least one piece of information you can be fairly certain of before carrying out any kind of transactions involving Spanish construction stocks.
Construction: rise in activity
Data from this sector highlights its enormous strength heading into this year. Capital cities and major urban centers led the growth in housing prices in Spain in 2017, with a year-on-year increase of 7,5% in December, compared to the national average of 4,5%, according to the monthly IMIE General and Major Markets statistics compiled by the real estate valuation and advisory firm Tinsa.
Following the publication of these figures, it is clear that the average home value remains at November 2013 levels , with a cumulative decrease of 38,6% since the 2007 baseline. Furthermore, the residential market has been characterized by moderate price increases in 2017, and we expect this trend to continue in 2018, with average growth of less than 5%. Although significant regional differences will persist, the recovery will extend to a greater number of locations.
More real estate transactions
The positive market sentiment, fueled by favorable economic growth forecasts and a stabilizing labor market, is expected to translate into a 10% to 15% increase in home sales, exceeding 550.000 transactions. This is further supported by estimates of around 20% growth in the number of building permits for new construction in 2018. Given this overall scenario, it could be an opportune time to enter the market through equity investments, with short- to medium-term holding periods.
Another piece of data supporting this decision comes from the Institute of Economic Studies (IEE). They predict that investment in construction in Spain will rise by 4,6% in 2018. If these growth expectations hold, there is no doubt – this private organization emphasizes – that the growth rate will accelerate from now on compared to the current year, thanks to the boost from residential construction . This would then be reflected in the stock market values ​​representing this sector, so characteristic of the Spanish economy.
Construction sector potential
The Spanish continuous market has a wide representation of this type of stock, with companies like ACS, Ferrovial, Acciona, FCC, and Inmobiliaria Colonial among the most prominent. It's no wonder, then, that some of the leading financial market analysts believe they are still trading at a discount, with potential upside, in some cases, exceeding 10% . These companies offer margins that are generally higher than those of some of the most important sectors of the Spanish equity market, providing a platform where you can grow your savings with greater guarantees of success.
On the other hand, you must not forget that this sector, so crucial to the Spanish economy, is currently experiencing a surge in growth. The return to real estate is a clear reality within Spanish society. Furthermore, these investments are characterized by the distribution of dividends to shareholders , offering a return on savings that can reach levels very close to 5%. These dividends are paid at varying intervals and automatically deposited into your bank account.
Increase in mortgage activity
Nor can you forget that the upswing in real estate activity stems from the greater ease of obtaining mortgage loans. According to the latest data provided by the National Institute of Statistics (INE), the average amount of mortgages registered in property registries (originating from previously executed public deeds) is €146.379, 23,5% higher than in the same month of 2016.
Meanwhile, and still referring to this significant activity, the number of mortgages taken out on homes is 24.706, an 8,2% increase compared to 2016. The average loan amount is €120.628, representing a 9,2% annual increase. This official report also reveals that for mortgages taken out on all types of properties, the average initial interest rate is 2,66% (13,1% lower than in October 2016) and the average term is 23 years.
65,6% of the mortgages are at a variable interest rate and 34,4% at a fixed rate. The average interest rate at the beginning is 2,41% for variable rate mortgages (19,5% lower than in October 2016) and 3,36% for fixed rate mortgages (2,7% more high).
Mortgages with registry changes
The total number of mortgages with changes to their terms registered in the property registries is 7.228, a 14,7% decrease compared to the same month last year. Specifically for residential properties, the number of mortgages with modified terms fell by 18,5%. Looking at the type of change, 5.485 novations (or modifications with the same financial institution) occurred in October, representing an 18,7% year-on-year decrease. The number of transactions involving a change of lender (creditor subrogations) increased by 2,8%, while the number of mortgages with a change of mortgage holder (debtor subrogations) decreased by 6,1%.
On the other hand, of the 7.228 mortgages with changes to their terms, 37,6% are due to modifications in interest rates. After the changes, the percentage of fixed-rate mortgages increased from 17,7% to 21,2%, while the percentage of variable-rate mortgages decreased from 81,7% to 78,0% . All of this makes it easier for borrowers to buy their dream home, to the point of revitalizing the sector to levels not seen in a few years. This is a snapshot of the mortgage market in Spain for the coming months, offering a reason to approach it with optimism if you are considering investing in any real estate stocks.
Results by Autonomous Community.
The Autonomous Communities with the highest number of mortgages constituted on dwellings in October were Comunidad de Madrid (5.168), AndalucÃa (4.847) and Cataluña (3.998). The communities with the highest annual variation rates are La Rioja (87,0%),
Community of Madrid (31,2%) and Galicia (22,1%). The communities in which more capital is lent for the constitution of mortgages on homes are Comunidad de Madrid (859,5 million euros), Catalonia (575,5 million) and finally Andalusia (492,2 million).
The Euribor below minimums
One of the advantages you have right now is that the European benchmark interest rate for mortgages is at one of its lowest levels in recent years, specifically at -0,180% . This makes it easier to find financing to buy an apartment. Indeed, current mortgage offers are being presented with spreads even below 1%. And some developments are being marketed with other strategies, such as waiving fees and other management or maintenance costs. In any case, the interest rates are much more competitive than before.
In this way, it is an optimal time to buy a property. And this is a factor that in the end affects the evolution of the construction sector values ​​on the stock market and that at the moment are not included in their current value. Being one of the reasons to open positions at the current prices with which their shares are listed. Beyond other approaches of a technical or even fundamental nature. It is, therefore, a buying opportunity if economic growth continues in Spain during this current year. With more options than in other sectors of the stock market.