17/06/2024
Aumento o disminución de precios de venta de los activos por aumentos o disminuciónes de las tasas de capitalizacion.
////////////////////////////////////\\
Increase or decrease in the selling prices of assets due to increases or decreases in capitalization rates.
Asset Market Supply : This refers to the availability of real estate assets for purchase. It focuses on the selling prices and cash flows generated by these assets.Impact on Asset Market Supply: A high IVAE suggests increased construction activity, leading to a potential future increase in the overall supply of real estate assets . However, it takes time for these assets to be completed and enter the market for sale.
Based on the provided Construction IVAE data, we can make some preliminary observations:
2020: The sharp decline in construction activity could have led to a potential decrease in capitalization rates (due to reduced supply) and an increase in selling prices in subsequent years, assuming demand remained relatively stable.
2021-2023: The increase in construction activity, particularly in 2022 and 2023, could potentially lead to higher capitalization rates in the future as new supply enters the market. However, the actual impact on selling prices will depend on the pace of construction completions and changes in demand.
////////////////////////////////////////////
To effectively measure the supply side of the asset market using the IVAE, we need to focus on the level of construction activity rather than its rate of change. Therefore, the most suitable unit of measure is:
Index levels (both original and seasonally adjusted)
Rationale
Direct Measurement of Activity: Index levels provide a direct measure of the volume of construction activity at a specific point in time. A higher index level indicates a greater level of construction, which is directly linked to the potential supply of real estate assets.
Comparison Over Time: While year-on-year variation rates and average accumulated variation rates provide valuable insights into the change in construction activity, they are less effective in capturing the absolute level of supply at a given point in time.
Correlation with Asset Supply: By tracking changes in index levels over time, we can identify periods of increased or decreased construction activity, which will subsequently impact the supply of real estate assets in the market.
////////////////////////////////////////////////
EL SALVADOR: ÍNDICE MENSUAL DE ACTIVIDAD ECONÓMICA POR RAMAS DE ACTIVIDAD
DEFINICIÓN
El Índice de Volumen Actividad Económica (IVAE) mide la evolución de la actividad económica de las diferentes industrias incluidas en el cálculo del Producto Interno Bruto.
CARACTERÍSTICAS IMPORTANTES
· El Banco Central de Reserva de El Salvador calcula la serie desestacionalizada para aislar los efectos estacionales.
UNIDAD DE MEDIDA
· Niveles del índice (tanto original como desestacionalizada)
· Tasa de variación interanual
· Tasa de variación promedio acumulada
PERIODICIDAD
Mensual
OPORTUNIDAD
De 55 – 60 días luego de terminado el mes
DETALLES POR PAÍS
· Año base: 2005. Año de referencia: 2014 (2014=100)
FUENTE DE DATOS
•Información del índice original proporcionada por el Banco Central de Reserva de El Salvador.
/////////////////////////////////////////////////////
Seccion F Construccion
Incluye 41 Construccion de Edificios, 42 Obras de Ingenieria Civil, 43 Actividades especializadas de construccion
41 Construcción de edificios
410 4100 Construcción de edificio
42 Obras de ingeniería civil
421 4210 Construcción de carreteras y vías de ferrocarril
422 4220 Construcción de proyectos de servicio público
429 4290 Construcción de otras obras de ingeniería civil
43 Actividades especializadas de construcción
431 Demolición y preparación del terreno
4311 Demolición
4312 Preparación del terreno
432 Instalaciones eléctricas y de fontanería y otras instalaciones
para obras de construcción
4321 Instalaciones eléctricas
4322 Instalaciones de fontanería, calefacción y aire acondicionado
4329 Otras instalaciones para obras de construcción
433 4330 Terminación y acabado de edificios
439 4390 Otras actividades especializadas de construcción
/////////////////////////////////////
este podria ser un indicador de que en 2023 hubo una gran liquidez, hubierons altos volumenes de transacciones de activos, y eso lo que hizo fue que bajo la tasa de capitalizacion porque habia mas liquidez. pero no hay que olvidar que existe una gran diferencia cuando los precios aumentan y baja la tasa de capitalizacion porque hay dinero para comprar activos y cuando los precios aumentan porque los fundamentales estan bien, porque hay demanda de espacios y eso hace que suban los precios de los alquileres y aumente la ocupacion y eso incrementa los los flujos de efectivo, pero lo que estamos viendo en el salvador es que los esta aumentando la liquidez para compra de inmuebles, subiendo las tasas de capitalizacion, pero los ingresos operativos no estan aumentando porque no hay demanda de alquiler. Osea se venden los inmuebles pero no se alquilan.
Aqui estamos viendo ya que quiza la brecha entre aumentos de ingresos y aumentos de precios se va disminuir. los ingresos han ido disminuyendo y los precios han ido aumentando, lo que hace que los inmuebles esten sobrevaluados.
//////////////////////////////////////////////
Increase or decrease in selling prices of assets due to increases or decreases in capitalization rates.
//////////////////////////////////////////
The Economic Activity Volume Index (IVAE) measures the evolution of economic activity in the different industries included in the calculation of the Gross Domestic Product.
Important Characteristics:
The Central Reserve Bank of El Salvador calculates the seasonally adjusted series to isolate seasonal effects.
Unit of Measure:
Index levels (both original and seasonally adjusted)
Year-on-year variation rate
Average accumulated variation rate
Periodicity:
Monthly
Timeliness:
55-60 days after the end of the month
Country Details:
Base year: 2005. Reference year: 2014 (2014=100)
Data Source:
Information on the original index provided by the Central Reserve Bank of El Salvador.
////////////////////////////////////////////////
1. Niveles del índice (tanto original como desestacionalizada): Index levels (both original and seasonally adjusted).INDICES: This refers to the "index levels" (both original and seasonally adjusted).Index levels provide a snapshot of economic activity at a specific point in time.
Explanation: This refers to the actual value of the index for a specific period. The "original" index reflects the raw data, while the "seasonally adjusted" index removes the effects of seasonal patterns (e.g., higher retail sales during holidays).
Example: An index level of 110 in a specific month indicates that economic activity in that month was 10% higher compared to the base year (2014 in this case).
2. Tasa de variación interanual: Year-on-year variation rate.TASA DE CRECIMIENTO ANUAL: This corresponds to the "year-on-year variation rate."Year-on-year variation rates compare changes over time.
Explanation: This measures the percentage change in the index compared to the same period in the previous year. It provides a year-over-year growth or decline perspective.
Example: A year-on-year variation rate of 5% indicates that economic activity increased by 5% compared to the same month in the previous year.
3. Tasa de variación promedio acumulada: Average accumulated variation rate. TASA DE CRECIMIENTO DEL PERIODO: This is similar to the "average accumulated variation rate," but it might focus on a specific period rather than the entire year.Average accumulated variation rates provide a cumulative view of growth or decline.
Explanation: This calculates the average percentage change of the index over a specific period (e.g., year-to-date). It provides a cumulative growth or decline measure.
Example: An average accumulated variation rate of 3% for the first quarter indicates an average growth of 3% compared to the same period in the previous year.
/////////////////////////////////////////
Section F: Construction
Includes 41 Construction of Buildings, 42 Civil Engineering Works, 43 Specialized Construction Activities
41 Construction of buildings
410 4100 Construction of buildings
42 Civil engineering works
421 4210 Construction of roads and railways
422 4220 Construction of public utility projects
429 4290 Construction of other civil engineering works
43 Specialized construction activities
431 Demolition and site preparation
4311 Demolition
4312 Site preparation
432 Electrical installation, plumbing and other installation activities for buildings
4321 Electrical installation
4322 Plumbing, heating and air conditioning installation
4329 Other installation activities for buildings
433 4330 Finishing and completion of buildings
439 4390 Other specialized construction activities
////////////////////////////////////////////////////////
This could be an indicator that in 2023 there was a lot of liquidity, there were high volumes of asset transactions, and that is what caused the capitalization rate to decrease because there was more liquidity. But we must not forget that there is a big difference when prices increase and the capitalization rate decreases because there is money to buy assets and when prices increase because the fundamentals are good, because there is demand for spaces and that causes rental prices to go up and occupancy to increase and that increases cash flows, but what we are seeing in El Salvador is that liquidity is increasing for the purchase of real estate, raising capitalization rates, but operating income is not increasing because there is no demand for rent. In other words, real estate is being sold but not rented.
Here we are seeing that perhaps the gap between revenue increases and price increases is going to decrease. Revenues have been decreasing and prices have been increasing, which means that real estate is overvalued
/////////////////////////////////////////////
Construction IVAE as an Indicator of New Inventory:
The Construction IVAE can be a good initial indicator of new inventory being added to the market. A significant increase in the IVAE for the construction sector (Section F) suggests a rise in construction activity. This could translate to an increase in the future supply of commercial and residential spaces.
Limitations of Construction IVAE:
However, the IVAE doesn't directly tell you:
Specific Types of Construction: While it shows overall construction activity, it doesn't distinguish between residential, commercial, or other types of projects.
Completion Time: The IVAE doesn't reflect the time it takes for construction projects to complete. There might be a lag between increased construction activity and new spaces entering the market.
Combining Construction IVAE with Other Data:
For a more comprehensive picture, consider using the Construction IVAE along with:
Building Permits: Data on building permits issued can provide a more specific lead on the types and locations of new construction projects.
Construction Completion Data: Information on completed construction projects can help understand how quickly new inventory is entering the market.
Vacancy Rates: Evaluating vacancy rates alongside construction activity can reveal if demand is keeping pace with the new supply.
Capitalization Rates and New Inventory:
Your analysis is on the right track regarding the potential impact of new inventory on capitalization rates. If new construction leads to a significant increase in available space, it could put downward pressure on rental prices. This, in turn, could lead to higher capitalization rates (as investors require a higher return on their investment due to lower rental income projections).
However, it's not always a straightforward cause-and-effect relationship.
Demand Matters: If demand for space remains strong and absorbs the new inventory, rental prices and capitalization rates might not be significantly affected.
Location and Property Type: The impact of new inventory on cap rates depends on the location and type of property. For example, an increase in office space in a saturated market might affect cap rates more than an increase in high-demand apartments in a growing area.
Next Steps:
Obtain Data: Look for data on building permits, construction completions, and vacancy rates in El Salvador alongside the Construction IVAE.
Analyze Trends: Analyze how the Construction IVAE has changed over time and compare it to trends in vacancy rates and rental prices. This can help assess the potential impact of new construction on the market.
Consider Market Specificity: Be mindful of local market dynamics in different regions or property types when interpreting the impact of construction activity.
By combining the Construction IVAE with other data and considering market specifics, you can gain valuable insights into the potential effects of new construction on the asset market in El Salvador.
Analyzing the Impact of Construction IVAE on Real Estate Market Dynamics
Understanding the Relationship Between Construction Activity and Real Estate Market Dynamics
Your analysis correctly identifies the potential relationship between increased construction activity, as indicated by the Construction IVAE, and changes in the real estate market, particularly in terms of capitalization rates and property values.
Key Points:
Increased Construction Activity: A rise in the Construction IVAE suggests a surge in building activity, potentially leading to an increased supply of real estate assets.
Impact on Capitalization Rates: If demand for real estate remains relatively stable while supply increases, capitalization rates could potentially increase. This is because investors may require higher returns to justify investing in properties with increased competition.
Potential for Overvaluation: The situation you describe in El Salvador, where property prices are increasing while rental income (and potentially occupancy rates) stagnates, suggests a potential overvaluation of the real estate market. This is a concerning trend as it indicates a growing disparity between asset prices and underlying fundamentals.
Further Considerations
To gain a deeper understanding of the relationship between construction activity and real estate market dynamics, consider the following:
Type of Construction: Differentiate between residential, commercial, and industrial construction as they have varying impacts on the overall real estate market.
Geographic Location: Analyze construction activity at a regional level to identify areas with potential oversupply or undersupply.
Economic Indicators: Consider broader economic factors such as GDP growth, employment rates, and interest rates to assess the overall health of the real estate market.
Market Sentiment: Evaluate investor sentiment and expectations for future property values to understand how psychological factors influence market behavior.
By incorporating these factors into your analysis, you can develop a more nuanced understanding of how construction activity influences capitalization rates, property values, and overall market dynamics in El Salvador.
//////////////////////////////////////
construction ivae monthly index (over 100): 2019 average was 26.52, 2020 was 3.99, 2021 was 10.8, 2022 was 25.4, 2023 was 47.9, and the yearly average for 2024 until march was 16.5
The data indicates a significant fluctuation in construction activity in El Salvador from 2019 to 2024.
Key Observations:
Sharp Decline in 2020: The dramatic drop in the Construction IVAE in 2020 suggests a severe contraction in construction activity, likely due to the COVID-19 pandemic.
Subsequent Recovery: A notable rebound occurred in 2021, indicating a recovery in the construction sector.
Strong Growth in 2022: The further increase in the IVAE in 2022 points to sustained growth in construction activity.
Peak in 2023: The exceptionally high IVAE in 2023 suggests a peak in construction activity, potentially driven by factors such as government stimulus, pent-up demand, or low-interest rates.
Potential Slowdown in 2024: The decline in the average IVAE for the first quarter of 2024 might signal a potential slowdown in construction activity.
Implications for the Real Estate Market
Increased Supply: The surge in construction activity in 2022 and 2023 could lead to an increase in the supply of residential and commercial properties in the coming months and years.
Potential Impact on Prices: If demand for real estate remains stable or declines, the increased supply could put downward pressure on property prices and rental rates.
Market Segmentation: The impact of increased construction activity might vary depending on the type of property (residential, commercial, industrial) and location.
Economic Indicators: It's crucial to analyze the Construction IVAE in conjunction with other economic indicators, such as GDP growth, employment rates, and interest rates, to gain a comprehensive understanding of the real estate market.
To further analyze the impact of this data on the real estate market, consider:
Comparing the Construction IVAE to other economic indicators like GDP and consumer confidence.
Analyzing regional variations in construction activity within El Salvador.
Assessing the types of properties being constructed (residential, commercial, industrial).
Evaluating the absorption rate of new construction (how quickly new units are being rented or sold).
By combining this information with data on property prices, rental rates, and occupancy rates, you can develop a more comprehensive picture of the El Salvador real estate market and its potential trajectory.
/////////////////////////////////////////////
Correlating Construction IVAE with the Supply Side of the Asset Market
Understanding the Relationship
The Construction IVAE serves as a proxy for the rate of new property development within the economy. By examining its relationship to the supply side of the asset market, we can gain insights into how construction activity impacts the availability of real estate assets.
Key Points
Construction IVAE as a Proxy for Supply: A higher Construction IVAE generally indicates increased construction activity, which translates to a potential increase in the supply of real estate assets in the future.
Time Lag: It's essential to consider a time lag between the increase in construction activity and the actual impact on the supply of available properties. Construction projects take time to complete and enter the market.
Asset Market Supply: The supply side of the asset market, as defined by your components (B3.1 to B3.5), is directly influenced by the rate of new property development. An increase in construction activity (higher IVAE) will eventually lead to an increase in the "Current Inventory of Physical Spaces for Lease" (A.1.1) within the space market.
Impact on Asset Values: If demand for real estate remains constant or increases at a slower pace than the increase in supply, property values (B.3.1) might experience downward pressure due to increased competition.
Cash Flows and Capitalization Rates: Higher supply can impact rental prices (B.3.2), potentially leading to lower operating cash flows and consequently higher capitalization rates (B.3.4).
Key Considerations
Type of Construction: The composition of the Construction IVAE (residential, commercial, industrial) will influence its impact on different segments of the real estate market.
Market Absorption Rate: The speed at which new properties are absorbed by the market can affect the relationship between construction activity and property values.
Economic Conditions: Overall economic performance can influence both construction activity and real estate demand, moderating the impact of new supply on prices.
Geographic Location: Regional variations in construction activity and market demand can lead to different outcomes.
Conclusion
The Construction IVAE is a valuable indicator of potential changes in the supply side of the real estate asset market. By analyzing the IVAE in conjunction with other market data, such as rental rates, occupancy rates, and property prices, you can gain a deeper understanding of the relationship between construction activity and real estate market dynamics.
//////////////////////////////////////////
