The fundamentals of the Spanish residential real estate sector have been solid for some time and, in fact, continue to be so. In addition to job creation, rising wages and abundant mortgage financing, interest rates remain low, housing supply is limited and prices, reasonable. Moreover, housing affordability stands at historical averages. However, developers listed on the Spanish stock exchange have underperformed the market since last summer. The downward adjustments in the business plans of some companies and the fact that many investors lack insight into the development business have led to a high degree of uncertainty regarding future profits and yields. As such, the market valuation of developers is currently well below asset values.
This situation has prompted us to write 'A Brief Guide for Fundamental Analysis of Development Companies' with the aim of helping our readers better understand the development business, its impact on the financial statements of companies and its most reasonable valuation. In our opinion, the current situation has generated buying opportunities for investors with a medium-term investment horizon and knowledge of both particular companies and the sector as a whole.