A Recipe for Disaster

Published on 30/04/2007 in Investing in Spanish Property

There is a major problem with the real estate market right now in Spain for those who have taken the time to look around and gather information which is a recipe for disaster staring everyone in the face.

Unless the building industry, the planning authorities, the people like yourself perhaps, the architects association etc get together to resolve same the market is on a rocky road to nowhere.

The developers very much seem to be totally unaware of or interested in the market demand and are just non stop building in even more strange locations with no views or harmony-just look at the number of unsold new apartments around which the developers are often happy enough to leave empty !!. What does that say for the way they are being either subsidized, preferentially taxed and even recuperating their cash outlays from the 30% average apartments sold in most current low quality developments -this also confirms the mark up margins are far too high which is pure arrogance, a negative trait well known in Spain unfortunately.

I fail to understand why nobody of prominence is able to get this across to the powers that be; to continue to talk through smoke and mirrors about the attraction of buying in Spain under the present circumstances is tantamount to madness. The Spanish Government for years have done exceptionally well on property Capital Gains tax because there was a large turnover in the market but this has very much dried up in the Costa del Sol as there is almost no resale market for apartments primarily due to mass of new apartments on the market i.e few sellers and a small number of buyers.

There is no market whatsoever for current owners to upgrade their property as they are unable to sell their existing properties without taking big losses; the market itself cannot be sustained by new buyers only as the number of such people is far smaller today % wise than say 5-10 years ago.

It needs a complete shake up i.e.

  1. A moratorium on the building of all new urbanizations
  2. A review of all licences for urbanizations under construction; the pulling down of any unlicensed such constructions ( fining developers is absolutely not the answer as this achieves nothing other than increasing the local council revenues whilst the problem building remains.
  3. A change in the licensing regulations in terms of building standards, heights and density
  4. A new approach to building style and appearances versus the current numerous faceless, featureless apartment blocks under way.
  5. A change in the inheritance tax laws concerning property owned in Spain at least by non residents
  6. Capital gains tax should be dropped or minimized for those sellers buying another property in Spain ; this would be an instant incentive to the market and very easy to administer via the Notaries/Lawyers.
  7. The stopping of any developments which are a blight to the environement, cause major view obstructions to others, which involve the leveling off or defacing of existing hills/slopes etc. This is a big challenge to be able to set objective standards/requirements but it is critical for the image of the industry.
  8. Finally a professional group ( exc developers/politicians ) need to make a real market survey for the next 5-10 years to agree what amount of new apartment buildings should be allowed to meet forecast demand; this is a politically challenging task as it may well leave the Andalucian Builders with many unemployed on their hands initially but that may well be the price that has to be paid. It is absurd to have the current situation where there must 20-30 new apartments available in the Costa del Sol for every potential buyer - a situation that is unheard of in any other relevant EU country. 

Hope this is food for thought and some action.

Written by: Roy Martinez

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DiJit said:
07 June 2008 @ 00:14

Whilst some of what you say is reasonable the following is wrong:-
'A review of all licences for urbanizations under construction; the pulling down of any unlicensed such constructions'

This approach has damaged confidence. Any further such demolitions without full compensation to innocent buyers will kill the market stone dead.

It's the developers who build illegally who should face severe sanctions not the buyers. Lay the blame where it rightfully belongs.

Bloomsy said:
12 July 2007 @ 11:41

Hi Roy, After reading your artical, I quite agree, I am on the Costa Blanca, and we have exactly the same problem. I also feel there should be some sort of public information about real estates and property developers. My partner found a fantastic offer in the paper and in a real estate in town, for a property by Grupo Trampolin in Murcia. We went on a trip, all look fantastic, but never con a conner, we got all the usual patter but what made me laugh was the fact he suddenly found a property for 7% less, but it was the same price as what was on offer, but without the I.V.A on top, then they were giving us something else to do with the golf club, but that was already in all the brochure and other real estates brochures, but what is worring me is the fact these peope do not have planing permission, and they want us to pay 6000Euros deposit then after 14 days 35000Euros, and that before there is any planing permission. DO THESE PEOPLE THINK WE ARE STUPID.

jane b said:
01 May 2007 @ 15:02

Just what we have all been saying for the last three years at least. If everyone who lives here can see it, why can´t the authorities and the developers see that they are killing the goose that laid the golden egg? I think we all know the answer to that one.

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