Risk control, the key to real estate transactions

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Although many people believe we are living in a challenging time for the real estate sector, the truth is that we are facing a crisis of confidence, which is very different.

Sector background

The 2007 bubble is still fresh, but the present situation is nowhere near similar. The 2007 situation resulted from excessive investment in the real estate sector, which led to the over-indebtedness of entrepreneurs and buyers in an oversized way.

This scenario collided head-on with the biggest financial credit crisis of the last 80 years. You could compare it to driving a Ferrari and running out of gas in the middle of the desert.

Current situation

To date, banks are healthy, and the debt of entrepreneurs and buyers is within acceptable limits.

However, the current problem is inflation, resulting in a rise in interest rates. Therefore, a slowdown in the sale and purchase markets. In a self-regulated cyclical sector such as real estate, it constitutes a standard milestone.

The fact that interest rates, after a long period close to 0%, are currently hovering around 3% falls within the parameters of normality, corresponding to a logical development for the part of the cycle in which we find ourselves. The most immediate consequence should be a slowdown in the volume of sales and purchases, leading to an increase in sales periods and a stabilization of prices, leading to a period of stability in the sector until the next momentum.

In Spain, especially in large urban centers, the latent demand for housing continues to exceed the existing supply. Nowadays, the most important thing is to aim for the best. Not everything is valid. Although there will be opportunities in the sector, it is essential to perform a detailed and professional analysis of the investment to invest well.

Despite inflation, there are niche markets that continue to perform very well today, such as prime areas in Madrid and the Basque Country, the Costa del Sol, which has become a haven for the great European fortunes, or the alternative rental product, which is becoming very important for the 25 to 35-year-old population, who are unable to afford to buy homes.

Risk control: Fellow Funders

Fellow Funders‘ expert analysis relies on a tool that can model any business in a quick and detailed way. It also provides a sensitivity analysis of any variable to stress the model, thus detecting and quantifying any possible risk.

Pablo Barriopedro
Head of Real Estate

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