Real Estate

Annual Report 2005

WITH OVER 19,000 HOMES IN DEVELOPMENT AND A STABLE PRESENCE IN OVER 40 CITIES IN SPAIN, FERROVIAL'S REAL ESTATE DIVISION HAS BECOME ONE OF THE COUNTRY'S LARGEST PROPERTY DEVELOPERS IN RECENT YEARS. BASED ON AN INDUSTRIAL APPROACH TO THE BUSINESS, ACTIVITY IS FOCUSED ON THE RESIDENTIAL SEGMENT – MAINLY FIRST HOMES – AND PROPERTY BROKERAGE UNDER THE DON PISO BRAND.

COMPETITIVE SITUATION

In 2005, a new real estate scenario was confirmed: one that is more balanced, aligned with European trends and characterised by slow growth. A steady supply of new and second-hand homes combined with a relative deceleration in demand had two immediate consequences: homes took longer to sell and prices were less pressured (this may persist in 2006 with around 5% growth, faster than inflation).

The steady price slowdown was more evident in regions with large cities (Madrid and Cataluña) and in areas of foreign tourism (mainly the Canary and Balearic Islands and Andalucía).

The demand for homes continued to be underpinned by sound factors (with no sign of a sharp adjustment in the sector), including higher real household incomes in Spain, steady employment growth rates and net immigration; all of this in a dynamic economic situation in Spain and Europe, where mortgage conditions continue to be favourable.

Those factors are as follows:

• economic: as in preceding years, the trend in economic factors in 2005 was decisive by enabling the sizeable demand generated by demographic factors and population structure to enter the market.
The two main macroeconomic variables that influence the market, GDP and unemployment, both performed well. The economy grew by 3.4%, i.e. faster than in previous years. And unemployment was stable with respect to the preceding years.
Another factor that influences demand, although not decisively, is interest rates. They increased moderately in the fourth quarter of 2005 and this trend is expected to continue in 2006. Moreover, mortgage repayment periods continue to be extended: the monthly mortgage repayment for 6,000 euro fell from 93 euro in 1990 to 27 euro in 2005.

• demographic: sizeable growth in the age bracket of first-home buyers (25-35) in the 1990s and early 2000s. Immigration will continue to be a determining factor for demand in the coming years: the experts estimate that 130,000 households will be created per year in 2005-2011;

• sociological: the number of persons per household has declined from 3.36 in 1991 to the current 2.86.
In the second home market, mainly along the coast, foreign demand continues to grow and domestic buying is stable. Tourist traffic decelerated but not the percentage of tourists buying a home.

In 2005, sales and prices of used homes increased, but not as fast as in previous years, so the medium-term trend is similar to that in new homes.

The property market continued to be fragmented: Spain's top ten developers account for less than 5% of the total market; and the structure is very local.

STRATEGIC POSITIONING

As a result of the new medium-term scenario for the property market, in which homes take longer to sell, there is less pressure from demand and home price growth is slower than in previous years, Ferrovial's Real Estate area is reorienting its business strategy in order to position itself adequately in a different framework so as to continue expanding with suitable returns.

This strategy redefinition, which complements the company's strategy in the last decade, is based on:
• combining purchases of zoned land with acquisitions of land for development in the medium and long term in order to increase exposure to nearer-term development projects;
• positioning itself in markets that are in the initial phase of the property cycle and have growth potential, such as Eastern Europe, specifically Poland.

Ferrovial's business approach is to prioritise risk control; this determines the essential product of this activity (average-size mid-market first homes) and means that the company has considerable geographical diversification, mainly in Spain.

That strategy is rounded out by other action lines:
• an emphasis on sales by increasing sales channels (on-site offices, the Don Piso network, Ferrovial multi-product stores and offices in shopping malls);
• efficient land selection, prioritising good locations;
• search for customer satisfaction, especially in after-sales, by improving quality in handing over homes and responding efficiently to complaints;
• optimisation of development times and strict cost control.

 

SIGNIFICANT EVENTS

In 2005, Ferrovial's real estate division sold 2,327 homes and handed over 2,603. Pre-sales amounted to 788 million euro (+13.3%) and the property backlog (units sold not yet handed over) to 1.085 billion euro (+8.6%), which ensure nearly 90% of revenues in 2006, 50% in 2007 and 13% in 2008.

Ferrovial's presence in over 40 cities in Spain makes it one of the country's leading property developers, with a significant foothold in Madrid, where it has a sizeable presence in one of the region's biggest urban developments (Parque de Valdebebas).

At 2005 year-end, the company had land with permits for nearly 1.5 million square metres of buildings. In 2005, Ferrovial acquired land worth 339.2 million euro.

Ferrovial's Real Estate division does not rule out selectively increasing exposure in neighbouring countries or markets with growth potential.

As a result of this analysis, the company acquired land in 2005 for residential projects in the largest cities of Poland (Warsaw, Poznan and Krakow), where it will start developing in 2006 in conjunction with subsidiary Budimex, Poland's largest construction group. The objective is to become one of Poland's leading developers in the medium term.

Property brokerage is performed by Don Piso, which continued to expand in the year by opening company-owned and franchise offices to attain a total of 334 (134 offices and 200 franchises).

Company-owned stores were opened in Barcelona, East Coast, Andalucía, the Canary Islands and Zaragoza. Franchises were opened in nearly all the regions, except Cataluña, where Don Piso already has an extensive network. A total of 3,112 units were sold or brokered.

Marketing power is still one of the priorities of the real estate division, which signed more commercial agreements to expand the number of outlets.

In the last three years, Ferrovial has focused on increasing the number of house sales channels in shopping centres (Ferrovial pioneered an agreement with department store El Corte Inglés in 2001); in 2005, it focused on expanding the concept of multi-product stores by opening new offices in Madrid and Zaragoza. Ferrovial plans to expand this multi-product store concept in 2006 to the East Coast (Valencia), Málaga and the Canary Islands (Las Palmas).

Another focus is CRM (Customer Relationship Management), which links all the points of sale, including the various sales channels, enabling the company to monitor and manage real-time stock-to-sale more efficiently.

In the tertiary segment, Ferrovial continued to develop the Omega project, a new concept of business park located in Arroyo de la Vega (Alcobendas, Madrid).

 

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