There's a Spanish Armada Prowling Europe's Auction Rooms

  • Builders from Spain seek out machinery as activity picks up
  • Spanish firms sold off equipment as real estate market crashed

For evidence Spain’s construction industry is stirring back to life, look no further than the country’s bidders thronging to equipment auctions from France to the Netherlands.

As many as 1,017 Spanish bidders took part in auctions held during 2016 in Europe outside Spain by Ritchie Bros, the world’s largest industrial auctioneer -- a 22 percent increase from the previous year. The jump was fourfold compared with 2012, when Spain took a European bailout at the height of the financial crisis to rescue its banks buckling under a real estate bubble.

Ritchie Bros. auction.

Photographer: Angel Navarrete/Bloomberg

Spanish construction firms were mauled by a property crash that put 1.3 million workers in the industry out of work between 2008 and 2012. Now, as a growing economy spurs demand for new homes and investment, they’re building up their businesses again. More than 64,000 licenses for new homes were granted in 2016, the most since 2011, according to Spain’s public works ministry.

“It’s a very good sign,” said David Martinez, director general of Aedas Homes, a developer owned by the U.S. private equity firm Castlelake LP that plans to build more than 12,000 homes in Spain. “It shows it’s not just the developers saying they can see more demand but the builders also.”

Spain’s residential construction industry is starting to rise from the ashes of a crisis that saw the number of building companies seeking creditor protection peak at 2,487 in 2012, according to the public works ministry. Builders completed about 40,000 homes in 2015, compared with almost 600,000 in 2006, at the height of the boom.

“We think the recovery of residential real estate development is an almost inevitable outcome in 2017,” analysts at Spanish lender Bankinter SA said in a report dated Feb. 15. As well as the surge in licenses for new projects, the stock of unsold new homes will continue to be absorbed, giving developers a reason to start projects, they said.

Wanted: Building Equipment

The Ritchie Bros auction records also suggest that builders are looking to buy their equipment abroad because much of the gear in Spain was sold off during the crisis, said Jeroen Rijk, the firm’s managing director for Europe. The Spanish buyers showing up in the data represent the country’s construction industry as a whole and include residential and industrial builders as well as machinery rental firms.

Jeroen Rijk

Source: Ritchie Bros

Whereas Ritchie Bros would typically expected to sell about 20 mobile cranes a year at its auction site south of Madrid, that figure leaped to 176 in 2010 with construction and equipment hire companies dumping machines as the real estate crisis deepened. Last year, the firm sold 16 of the cranes in Spain.

“The equipment fleet around Spain has decreased massively and the age of it has gone up,” said Rijk in a phone interview. “We now see an increase in buyers at our auctions around Europe and they go to buy good, well-maintained second-hand equipment because there is very little available at home.”

Investors will have their say on Spain’s home-building recovery when they’re offered stock in Neinor Homes, a developer that built 2,000 homes in 2016 and expects that number to rise to 3,250 a year from 2018 to 2020. Lone Star Funds, which bought Neinor from Spanish lender Kutxabank for 930 million euros ($978 million) in 2014, plans to sell up to 50 percent of the company this year in an offering that could value the firm at about 2 billion euros.

Spanish homes sales rose 14 percent in 2016, according to the National Statistics Institute, confirming the recovery. Home appraisal firm Tinsa estimates average prices climbed 5 percent last year, with increases of 8.4 percent in Barcelona and 5.2 percent in Madrid.

Worries Remain

That said, clouds still hang over the broader Spanish construction industry.

Investment in infrastructure works remains subdued as the government reins in spending to comply with orders from the European Union to trim its budget deficit. Spanish cement consumption fell 3.1 percent last year, stalling a slow two-year recovery, according to the industry association known as Oficemen.

Some residential builders also see problems looming as demand rises in residential real estate hot spots such as Madrid and Barcelona. Delays in making more land available for construction and granting licenses to begin building work are a problem in some areas, said Antonio Martin, chairman of Madrid-based builder Grupo Avintia.

The risk is that builders will get sandwiched between rising costs for building land and limits on the affordability of homes for buyers still recovering from a crisis that pushed unemployment as high as 27 percent, he said. Still, Avintia expects to have 125 building projects under way this year, up from 116 last year and 107 in 2015.

“There is a recovery under way but it’s also important to read the small print,” said Martin.

    Before it's here, it's on the Bloomberg Terminal.