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Normality in the real estate sector

| COVID-19 / News | Real Estate

Antonio Ñudi analyses what the new normality in the real estate sector will be like and what measures are necessary for its recovery after the COVID-19 pandemic

Almost 100 days have passed since the now distant 14th March when the Government issued Royal Decree 463/2020 declaring the state of alert. An exceptional measure that was initially planned for a period of 15 days and was extended to 21st June. 

In addition to the enormous difficulty of facing up to a reality such as COVID-19, not only from a health point of view but also from an economic and social point of view, there was also the extraordinary difficulty of creating an emergency legal framework which, in a transitory manner, had to regulate practically all areas of our activity and, almost at the same time, lay the foundations for future economic recovery, around a new situation never before experienced.

In this difficult context, which has come to be called a new normality to make it clear that, at least for the time being, nothing will ever be the same again, the real estate sector, which has traditionally been one of the levers for economic development, job creation and the attraction of foreign investment, must now be an important part of the engine of recovery. 

To this end, certain aspects that have traditionally been able to slow down its development must now be overcome, more so than ever before:

-the land is the raw material and the processes of urban transformation are excessively long and complex. 

-the distribution of powers that, in matters of land legislation and urban planning, our Constitution establishes around the three territorial administrations (State, Autonomous Communities and City Councils) makes it a highly regulated sector with a very dispersed and complex legislation. 

-the processing of planning tools begins in the Town Halls but requires the consent of the Autonomous Community for their approval in most cases, not before passing the filter of numerous sectoral reports from different public and private bodies that must give their opinion on the environment, roads, water supply and treatment, sufficiency of energy supplies, etc., without which the process does not advance. These are particularly cumbersome processes that systematically fail to meet deadlines.

-the granting of planning permission, the last stage of the administrative procedure, is delayed by months with respect to the established standard, which in addition to the disquiet and loss of confidence in the applicant causes a significant economic loss that affects the final price of the product.

A recent study carried out by ASPRIMA and EY Abogados analysing the average time taken to grant building permits and first occupation licences for housing in certain municipalities throughout Spain, including Madrid and Barcelona for example, determined an extra cost for the developer of 12,235.71 .- euros due to the delay in the process, which was passed on to the end consumer for the amount of 22,383.41 .- euros, as it had to include other expenses such as rent increases or interest on loans for the old house, among others.   

In addition to this, another perverse effect is that local entities see delayed the income of taxes such as Property, Construction or Parking Accessibility Tax.

-the systematic judicialization of urban planning procedures makes the judicial process another phase of urban planning and management. The normative nature of the plans, moreover, determines that the effects of their annulment affect the totality without the possibility of validation. If we take into account how long it takes to process a plan and how long it can take to finish the judicial process in all its instances, we realize the step backwards that is taken with a declaration of this type.

These are some of the obstacles that hinder the normal development of the real estate sector. If we want a sector that is a lever for economic recovery and that contributes to the creation of employment and wealth, we must greatly improve some of the aspects mentioned above.

We must strengthen the public-private partnership. The public administration must work with the private promoter as if they were a team with the same objective, obviously each in their own area of competence.

Both the Ministry of Development and some Autonomous Communities are working hard to put affordable housing on the market, establishing formulas such as the granting of a surface right on publicly owned vacant land, which the individual exploits for a limited number of years.  

But for this it is also necessary to work from the normative point of view, to make the regime of uses admitted in these non-residential plots more flexible.

This flexibility in the regime of uses is also necessary to cover the new formulas that are appearing, such as co-living or co-housing, and to allow the implementation of these projects with legal certainty.

Another area in which work must be done is to speed up administrative procedures.

The Madrid City Council, for example, has approved a Shock Plan for the reactivation of the real estate sector that includes the implementation of a series of measures to speed up the processing of urban planning licenses, betting, among others, on the digitalization of some of the procedures for granting them or the granting of licenses in phases. It has also approved the text of an Ordinance to simplify town planning procedures.

The Madrid Autonomous Community, like Andalusia, among others, has initiated a modification of the processing of urban planning authorizations so that some of them are granted by a Statement ofResponsibility. This is the case of the First Occupancy Licence. 

From the point of view of access to credit, the sector demands aid for young people who have the capacity to spend but not to save, so that they can access their first home through lines of guarantees or more extensive mortgage loans.

Also, from the fiscal point of view, VAT reductions on purchases or tax relief are requested.  

These are all measures that are intended to have a short-term impact but to be maintained over time and to be complemented by others in the medium term.

The State Administration should work on some measures of the Land Law that limit the regulation of administrative silence or the declaration of responsibility by the regional legislation and recover this old draft of the Law on measures to strengthen legal security in the field of land and urban planning. On the other hand, some Autonomous Communities should address the more profound reforms of land laws that have become outdated.

During this crisis we are seeing an incredibly positive environment of understanding between the administration and the real estate sector. The Administration, in general, is making a special effort to implement new measures or accelerate those that were already on the political agenda.

After overcoming the severe crisis that began in 2007, in recent years the real estate sector has made a major effort to reconvert, resulting in a more professional, segmented and robust sector that has managed to attract national and international capital and become a global reference in the development of real estate projects.

Constant growth and factors such as the low level of debt of companies in the sector and the high liquidity of the market, with the help of measures that favour the development of projects and stimulate demand, will undoubtedly make the real estate sector a generator of employment and a driving force for the economy.  

You can see the article in El Independiente.

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