Interview with Jose Luis Hernandez, President of Polaris World

The president of Polaris World predicts that the largest promoter in the Region of Murcia will be handing over more than 3,000 properties to new owners during 2008.

The year 2007 has been, as you say, the best in its history. What does 2008 bring?

We hope to at least maintain last years results. It is a more complicated market: the customer is no longer as receptive to buying a second home as they were a few years ago and we must target our customer with more accurate communication. But we are still confident we will have a good 2008.
How will you survive the "crisis"?

Our product is sufficiently competitive to maintain customer interest. The customer remains interested as long as there is a competitive product. In addition the client continues to have purchasing power to acquire the product.
The industry seems to move towards a true partnership. How do you see this?

There are other builders of similar size searching for synergies and which individually cannot undertake certain initiatives, such as paying for a campaign on television. But with our sales volume we do not need partnerships, and we can undertake such initiatives on our own. But we have partnered with certain residential tourism associations, such as Live in Spain, where there are other developers and builders within the sector. At our level we also need to belong to a number of associations and Live in Spain provides, among other things, research and general promotion of the sector.
The main promoters of the country have created the G 14 to offer with one voice their views on the industry. I do not know exactly their intention. I speak of residential tourism. The initial purpose of the G 14, with companies whose investments are generally in the field of residential housing, is to create an atmosphere in the subject property. Live in Spain in addition to promoting a good image promoted commercial initiatives, such as assistance to joint trade fairs.
How can a company like Polaris World combat the feeling that the market will go down?

The main problem is that the customer thinks that now is not the time to invest in a second home. We want to demonstrate that at least in regard to our product this is not true. A two-bedroom apartment in one of our residential, with its surroundings, with their services and with their qualities, for 119,000 euros, is a purchase that remains very competitive and a good investment. So we intend to counter that trend.
What about the Regional "Ley del Suelo"?

We must have a legal framework in place which is flexible enough for the sector to continue its viability, which is not conducive to the bureaucracy that, put simply, be flexible enough to not paralyze the property business. One of the sector's main problems is the slowness in processing Urban licenses. That artificially lengthens the production process and reinforces cycles with periods of peak demand for excess soil and other oversupply. I do not think that is appropriate for a company to say how the law should be but we can give suggestions for making a legal framework more suited to the reality.
How long does the legal framework take for a typical profect?

This could be understood as a criticism but at the regional level, there has been a simplification of procedures environment in the past few weeks and it appears that the legislation is moving toward streamlining the bureaucracy. I think we can expedite over several months, which is a long time. It also depends on the legal basis of the land. It is not the same process to change rustic land to obtain building permission compared to that where we have land already approved in a plan or a partial draft urbanization.
What policies could exist to allow more people access to housing?

Until recently there was more demand than supply, that led to the prices going up and up. But if you eliminate distortions that exist in access to land that also means that you cannot speculate with it - put simply intervening in the supply and demand of land will remove a distortion. From there evolve all the processes leading to building a house.
Some voices in the industry say that if purchases are retraen can lead to a sharp rise in prices in the short term. Does that analysis mean once again an escalation of prices?

At any time prices can start to increase, but I doubt that is going to happen in 2008. What we have not seen recently in the property market is a scenario of price decreases. The increases tend to be smaller, but not down. This year's increase was modest, but there has been increasing. In 2008 no doubt prices will continue to rise. In the second home market in general, I do not think we are going to have large price rises because demand is not as high as before and I do not think that the promoters can choose to raise prices.
What impact will the rental aid policy have on the sector ?

You can and should allow access to housing for people who have difficulties. That can energize to a certain extent the sector. What is not known is whether they will be assisting 20 or 20,000 people, and even if will produce the desired effect. I am not saying that will be the case, but the landlord can raise prices in the knowledge that his client has 200 euros a month for aid. The effects we will see in the coming months.
Is it more desirable to encourage the purchase or rental of housing?

The two measures are successful, but I do not believe that they are themselves the only solution. This market includes much more than housing or rents. To energize a market as important as this are more structural changes. When you want to energize a sector of the importance of it in Spain you have to think much more in a big way.
What effect will the British market have?

The UK remains our main market, and we forecast a very promising 2008.
And the rest of the euro zone?

What we have seen is that all the markets in which we are active are going to behave in a similar manner in 2008 to 2007. Sales in Scandinavia are reasonably good, in Ireland, they are also reasonably good, in the Benelux countries and in Germany, they are more discreet. We have even launched initiatives to grow. We have opened an office in Paris and another in Finland to complete our work in Scandinavia. Therefore we have ambitions and clear indications that we can increase our activity in the euro area.
What is the difference between your product from that of other similar companies?

Quality, not only in housing,but the environment and also in services, far higher than our competitors for a price about 30 percent below. In a market with fewer applicants the demand is concentrated on the most competitive products. We believe that our product is the most competitive market and that the client is taking the wise decision to address it.
How do you get that competitive?

We have a good cost structure. Starting with the land, followed by construction costs, which we have optimized thanks to the fat that we have our own construction company, and we are going through a rationalization of the design of the house. From there we have come to a product that we can produce at a reasonable cost that we add a reasonable margin to the sale.
What volume of work is expected to be not directly related to housing?

In two to five years, we expect to come close to 25 per cent. In those other sectors, which are basically sales of furniture and tourism operation of our tourist infrastructure (golf, hotels, restaurants) we have yet to reach maturity.
What part of future turnover will be linked to the developments that are taking place in the town of Alhama?

Maybe we can talk about 60 percent over the next three years.
What element managed to unlock the deadlock that existed with the draft plans for Alhama?

Maybe more time was needed to be understood by those who were responsible for approving it. The project also has matured in this term have been consolidated by our guarantees with improvements in made already in infrastructure, communications, all of the requirements that are demanded by those who were responsible for approving it. To the extent that this has been consolidated and agreed. But this project has never been against it on principle to any political group of those who have spoken in its final approval. There were constraints as understood by those who had met to approve it has been consistent with his original idea and have approved. There has never been an opposition to the project itself as a matter of principle, no matter what may be understood by the press and such.
What timing of completion of developments have on the region?

This year we will deliver our first homes in Condado de Alhama and Terrazas de la Torre, another resort that we have in Torre Pacheco. We are talking about starting with the delivery of more than 3,000 homes during 2008. I believe that no company in the sector has some very ambitious plans for 2008.
And outside the region?

Our expansion plans are in the region, where we have many things to do. Geographical concentration in the Murcia region is an advantage for us. This is what has allowed us to create concepts like the Nicklaus Golf Trail, a circuit with the nine best golf courses in Europe in less than 25 kms, and gives more substance to our facilities that we can offer. The geographical proximity means that everything has a conceptual sense for the customer which is much more complete. A client, for example, can use our free transport and play nine holes in the morning in a resort, eat there, take that transport to go play another nine to another in the afternoon and dinner in addition at another site without having left our residential complexes. We are interested in a much richer experience than if we were to have one resort here, another in Huelva, one on the Costa Brava… that would not be the world of Polaris but another world.
Are they going to maintain in the future the situation shareholder after the changes were no more than a year ago?

It is not a goal of having a Polaris World shareholding structure of this kind or another. The partners, as far as I know, they intend to stay for the time being, and are pleased with the progress of the company. It looks to be during 2008 and 2009 and tell.
And a stock market listing?

It has been considered and the response so far has been that it is not a target for the shareholders of the company being on the stock exchange. So, stock market in 2008, no.

Reprinted from La Economía newspaper