Homes Razed by Spain Stun Foreigners as Slump Deepens

[muppet]

Homes Razed by Spain Stun Foreigners as Slump Deepens (Update1)

By Sharon Smyth

April 30 (Bloomberg) -- Leo Levett-Smith and his wife, Jean, thought they did everything right when they bought their retirement home in Spain. They used a registered real estate agent, a Spanish notary and obtained their mortgage through one of then country's largest savings banks.

Then in January they received a demolition order saying the house had been built without a permit.

``We really believed we had taken all the necessary precautions,'' says Levett-Smith, a 65-year-old retired traffic policeman from Cheshire, England, as he sits on the porch of the russet-colored villa in Catral, 42 kilometers (26 miles) southwest of Alicante. ``I mean, where else have you heard of this happening?''

Over the past decade, developers built about 100,000 illegal homes in Spain, and consumer advocates say thousands of those are now threatened with demolition as regional governments try to deter clandestine construction. The crusade may discourage the foreign buyers who fueled Spain's housing boom, deepening a slump that began last year.

``The problem is very serious,'' says Rafael Pampillon, an economics professor at the Instituto Empresa in Madrid. ``When a country has a system or set of institutions that allow illegal houses to be built and corruption to exist then evidently foreign investment is going to flee.''

At least one house has already been bulldozed. In January, Len and Helen Prior lost their three-bedroom villa in Almeria. The 63-year-olds from Berkshire, England, paid 350,000 pounds ($694,155) for the house in 2003.

Local Decisions

Each of Spain's 8,111 town halls has the authority to make planning decisions and issue building permits with little oversight from the regional or national governments. As property prices soared, some local officials were drawn into schemes to profit from new home construction.

The former head of urban planning in Marbella has been charged with money laundering and accepting bribes to issue building permits. When Juan Antonio Roca was arrested in March 2006, police seized 2.4 billion euros ($3.8 billion) of assets, including two hotels, sports cars and 103 horses. Roca denies any wrongdoing.

``When everyone is making money, for example the real estate agent, the town hall and the administration, everyone turns a blind eye,'' says Bernardo del Rosal, former ombudsman for the Valencia region. ``The system as a whole fails and the law is worthless when that happens.''

`Abysmal Light'

The local governments with the largest concentration of new housing, including Valencia, Alicante and Marbella, declined to say how many homes may be destroyed in their communities. Andres Lara, a spokesman for Spain's Housing Ministry, and officials at each of the 17 regional governments referred questions to the municipalities.

Government officials won't provide figures because it puts them in an ``abysmal light,'' says Bernardo Hernandez Bataller, a Spanish lawyer and president of a European Union committee that advises on financial services and consumer protection.

``It's safe to say the demolition orders could run into thousands,'' Bataller says.

Home prices almost doubled in the eight years through 2006, as buyers took advantage of a booming economy, stable employment and low borrowing costs. About 2 million foreigners own property in the country, according to Ciudadanos Europeos, which works to protect the interests of Europeans in Spain.

Economic Ripples

Spanish residential property prices fell in real terms for the first in more than a decade during the first quarter, as interest rates rose and banks tightened lending because of the global credit shortage.

The number of foreigners and non-residents buying homes in Spain fell 42 percent last year, according to the Housing Ministry. Their share of total transactions dipped to 9.5 percent from 12 percent.

The slowdown in the housing market, which represents 9 percent of gross domestic product, is rippling through the economy. GDP will expand 1.8 percent in 2008, less than half last year's pace, and unemployment will rise for the first time in more than a decade, the International Monetary Fund says.

``The bad press and examples of corruption have done nothing to help raise the confidence of international investors,'' says Miguel Martin Rabadan, general director of PricewaterhouseCoopers LLP in Spain.

The Levett-Smith's story is a parable for how exuberance and greed drove corruption in the Spanish housing market.

The couple moved to Spain seven years ago, initially settling in a village near Torrevieja on the Mediterranean coast. When the area became too crowded, they decided to move inland.

Family Connections

In 2005, the Levett-Smiths bought their three-bedroom house in Catral, paying 220,000 euros to Country Life Properties SL. The property is one of the 1,270 homes in the community that were built with insufficient permits issued during the 12 years that Jose Manuel Rodríguez Leal was the town's mayor. Some 160 homes in Catral have been served with demolition orders.

Among the companies that built the homes was Grufade SL, a developer registered in the name of Maria Angeles Rodriguez Leal, the former mayor's sister, according to a complaint filed by the European Association for the Protection of Urban Consumers. Grufade's sales rose to 1.7 million euros in 2006 from 3,900 euros two years earlier, according to filings at Alicante's mercantile register.

Rodriguez Leal resigned in January 2007, and his party was defeated in local elections the following May. A court in Alicante is investigating corruption charges against Rodriguez Leal. According to newspaper 20minutos.es there are 93 similar investigations in Spain.

`Sheds and Shelters'

Leal Rodriguez denies any wrongdoing. He says the blame lies with his brother-in-law, a builder by trade.

``Permits to build sheds and shelters were authorized, but when I realized they were being used to build houses I tried to stop them,'' Leal Rodriguez says. ``But they wouldn't, and I was powerless.''

Maria Angeles Rodriguez Leal and her husband declined to comment, according to a woman who answered the phone at Grufade's offices in Catral.

The Levett-Smiths tried to avoid the pitfalls of Spain's property market by hiring a Spanish notary to oversee their transaction, getting a 130,000-euro mortgage from Spanish savings bank Caja de Ahorros del Mediterraneo, and paying 300 euros for an independent survey. No one informed the couple that the building permits were illegal, the Levett-Smiths say.

Solving a `Mighty Problem'

Antonio Bellido, Catral's new urban planning counselor, is trying to stop the bulldozers. He has proposed charging owners of illegal homes 5 euros per square meter to have their houses legalized. That could raise 15 million euros for Catral based on Bellido's estimate that the illegal houses occupy 3 million square meters of land.

``Right now, Catral is infamous for its illegal houses,'' Bellido says. If the regional government approves the plan, ``Catral will become famous for being the town in Spain that found a solution to a mighty problem.''

If the Levett-Smiths lose their home they'll have to return to the U.K. and live with their daughter.

``No one in their right mind would give us a mortgage at our age to start again,'' says Leo Levett-Smith.

http://www.bloomberg.com/apps/news?pid=20601109&sid=a_y8j4QpEjVo&refer=home

[Alex K]

Just one comment on this article:

They used a registered real estate agent, a Spanish notary and obtained their mortgage through one of then country's largest savings banks.

Taking those steps unfortunately won't assure a good buy. The problem is that lawyer, agent etc. will usually not know that there's anything wrong, unless they investigate on their own - and here you put your trust in a person that doesn't have much to lose, but can gain your money.

What you can do is to check in the local government [in the town hall of the place where you buying] if the urbanization plan is authorized by regional government.
Those shady deals happen on the local level, usually behind the back of regional powers [and local lawyers or agents might be involved], so I'd be very careful if the town hall can't/doesn't want to show the approval for the development from regional government.

[mattnz]

Spain has to be the worst property market anywhere. I saw a property programme recently where they showed a british couple who bought land and legally built a house on it with a pool. A few years later the government decided to build a new road through their property, cutting in half their swimming pool, to allow new housing to be developed in their rural location.

Instead of giving the couple compensation, they are requiring them to pay additional money to the government, claiming that the other homes being built in the area will make their smaller property with no pool worth more money than it was originally.

Crazy people with no scruples.

[Alex K]

I wouldn't go as far as saying it's ''worst property market anywhere'' :P Problems like the one you mention can happen in any country, and to anyone, local or not. Spain still is one of the most popular property markets in Europe.
But it is true that recently there are some bad news coming from that country, and potential buyers need to be more careful than usually.

[mattnz]

In NZ, Australia, Britain, USA and other civilised countries they wouldn't steal your land and tell you to pay the government lots of money for the priviledge. It puts Spain in the same category as Zimbabwe for property rights, not OECD countries.

[revdev]

I am currently building a place here in Turkey and I'm sure these mediterranean countries all have a similar type of outlook.

Without question the first detail you need to find out, if you are looking to purchase land, is the goverment or councils road planning. They have every right, and will use that right, to build a road anywhere they like. The trick is to purchase land that has already been signed off and surveyed. If you don't follow this through then you only have yourself to blame - especially as a foreigner.

G

[mattnz]

There was no road planning when the couple bought the land. It was a later decision by the government, which claims all rights to do as they want to the individual for the "greater good" of everyone.

[revdev]

Well there you go then, exactly as I said. As a foreigner you wouldn't (shouldn't) even dream of buying land that hasn't already had road planning done. It can and does happen (obviously).

The governments aren't "stealing" the land Matt. All the locals know that if you buy land without roading permission you are taking a huge risk. If foreigners (like me) want to invest like this, then they must make the effort to understand how the system works.

G

[mattnz]

Here is an article on what they call Spain's Land Grab rule. i.e. private owners have no rights to their own property from http://www.nicholassnelling.com/documents/55.html. Not only do they steal your land, but also force you to pay for the developments in the area.

Over the past few years Spain has developed an appallingly bad name for the safety of its property. 'Land Grab' has become a phrase on everyone's lips and has struck fear into the hearts of many potential buyers - and not a few property owners currently living here. It has been the subject of newspaper columns, nationally and internationally, and has been investigated in numerous television programmes.

For the Spanish, 'Land Grab' has been a publicity disaster of epic proportions and one that has done tremendous harm. And yet, it has rarely been rebutted effectively by the Spanish government, whilst much of what has been written about it has rarely done the subject justice.

Without doubt, there have been appalling abuses within Spain, where land has been 'grabbed' from owners, so that it could be developed - often for fabulous profit. This has occurred in some prime coastal areas, where 'developers' have been able to obtain agricultural land extremely cheaply. Often helped by self-interested and corrupt local officials, the land 'grabbed' has then been re-designated as building land, allowing it to be developed into housing estates or golf courses. Meanwhile, the existing owners of properties on the 'grabbed' land have had to contribute massive sums towards infrastructure costs (roads, mains water, electricty etc.), whilst often losing a chunk of their own land.

As a potential buyer of a property in Spain, this is unnerving in the extreme! Indeed, it brings into question the very thought of buying property safely in the country.

However, time and again, when 'Land Grab' has been publicised, it is obvious that many of the property owners affected had bought unknowingly on Rustico land and (with amazing frequency) without the benefit of advice from a competent, independent lawyer. To some extent, they have been the author of their own misfortunes.

In fact, it is safe to buy property in Spain - but only certain types. And that is the 'rub'.
Spain is not like the UK and has existing property that varies from completely legal and safe to legal but subject to potential liabilities and property that is completely illegal. In the UK, by comparison, property is either legal - or demolished as soon as it is found to be illegal. There are no grey areas. In Spain, there are - and as a buyer it is imperative that you buy a fully legal property or know that you are buying a property that is not (or that may be subject to potential liabilities in the future).

In short, this complicated area can be summarised by stating that, before you buy, you must know exactly the implications of what you are buying. Far too often people buy property in Spain without having first investigated, for themselves, the basics of Spanish land law. They are then, all too easily, often let down badly by greedy and corrupt professionals who operate a conspiracy of silence - or who are, at best, 'economical with the truth'.

Critically, as a potential buyer, you need to know that there are three basic land designations that, in general, define a property's legality and any potential liabilities:

Urbano (Building) Land. This is clearly designated as such and usually (but not always) includes large estates with villas and pools etc. together with villages and towns. Property within this designation cannot be 'land grabbed' if it has been fully urbanised.

Rustico Land. This is all land not included in the above. Rustic land obviously makes up the vast, vast majority of all the land in Spain. Some part of it, at any stage, however may be re-designated as Urbanisable (see below). This is particularly true in high development potential areas such as those close to the coast or, perhaps, near to a booming town or village. If the designation is changed then 'Land Grab' and all the liabilities inherent in contributing to a first world infrastructure may occur.

Urbanisable. This is Iand that was Rustico but where the designation has been changed. It is effectively the transition period between the land being Rustico and Urbano. Any buyer or owner of property in Spain has to be very careful as he will have a significant liability, as a property owner, to contribute to new infrastructure works. These may be the widening of roads, the connecting of mains water, sewage, electricity and landline telephones. Pavements and street lighting will also be installed. Land may be 'grabbed', should it be necessary (i.e. to widen a road). The cost can be considerable. An area close to the writer was recently (200 urbanised at a cost of 38 Euros per m2 of land owned by each property (in this case, as an owner, if you have a 1,000m2 plot you will pay 38,000 E, for a 2,000m2 plot 76,000 E etc. etc. - towards the urbanisation costs.).

Clearly, the safest purchase that you can make is within land that is designated Urbano and that has been fully urbanised. However, property that is Urbano and that has been fully urbanised is always very much more expensive than that found within Rustico land - notwithstanding that given properties may be absolutely identical in appearance and size. Property within an Urbano and fully urbanised area has a much higher value because of its inherent safety and the modern infrastructure that will already exist (decent roads, lighting, internet, landline telephone, mains water, electricty etc. etc.).

The designation of Urbano land is absolutely clear, completely transparent, totally objective and can be established without doubt. The proof that an area is Urbano will be provided by the local town hall, who will produce for you, or your lawyer, a clearly marked plan of the Urbano area. If your property is within an Urbano area and has been fully urbanised then it will be the safest property that you can buy in Spain.

The designation of Rustico land is equally clear. However, it is not at all always apparent when, or if, a given piece of Rustico land will have its designation changed. This is the danger area. There may be no indication of a planned change to the designation of an area of Rustico land when you buy it - but this does not mean it may not happen in the future!

The change in designation from Rustico to Urbanisable can be very advantageous. The value of your property can rise enormously (depending upon various factors and the amount of land that you own) and, whilst you will have to pay towards the infrastructure costs, you may find that the change in designation is desirable and very profitable indeed. On the other hand, if the urbanisation project is administered poorly, or perhaps corruptly, then you may find that the re-designation is disastrous, blights your property and is very, very costly.

Clearly, most of the land in Spain, by definition, is Rustico. In such an enormous country it is therefore inconceivable that any but a tiny proportion of the land will ever be 'urbanised' or re-designated. The likelihood of 'urbanisation' must therefore be looked at with some degree of commonsense (combined with a good deal of caution) prior to buying a property in Spain on Rustico land.

ADVICE

1.Always establish the exact status of land upon which you are thinking of buying. The test is objective. Either a property is Urbano and fully urbanised - or not. Make sure that your lawyer confirms this fact and does so in writing. If you buy, then your property cannot be subject to 'Land Grab'.

2.If you choose to buy in Rustico land, ensure that your lawyer comprehensively checks that there are no plans for re-designation or projects in place that may initiate a re-designation of the land - unless you are seeking to buy as a risk investment.

3.Use your commonsense when buying in Rustico land. In reality, very few areas are re-designated. However, there are areas where clearly development is likely to occur over the coming years. These are often, but not always, in high value coastal areas and close to towns and villages that are expanding.

4.Most Rustico properties are safe to buy and will never be re-designated. Accordingly, they should not be dismissed out of hand. They often represent a good investment and provide tremendous value for money.

5.However, as with any property in Spain, always, always err on the side of safety and always have your conveyancing performed by an independent, English speaking, experienced Spanish conveyancing lawyer - and always know exactly the designation of what you are buying and any and all potential liabilities. And get your lawyer's advice placed into writing - which tends to be a 'wake-up' call for even the most incompetent or corupt professional!

6.Wherever possible always compromise on what you want - and buy a property that is Urbano and fully urbanised!

[mattnz]

It wasnt that there wasnt a roading plan, there was no plan for the road that was later decided to be built through their property.

[mattnz]

To me the key words in the article are "Rustic land obviously makes up the vast, vast majority of all the land in Spain." i.e. over 90% of the land in Spain could be stolen from the owner and instead become a liability with huge costs which are even greater than the purchase price you paid.

[mattnz]

Interviews with others living in Spain who had their land "legally stolen" under the land grab laws. http://news.bbc.co.uk/nol/shared/spl...s/03.09.01.txt
I was about to hear some particular experiences to shake the
confidence of anyone thinking of buying in Spain..

MAN: I’m Graham, my wife’s name is Jan. We’ve
been living in Spain for approximately six years in the property
that we own, or that we thought we owned. We were very happy
until suddenly this Spring a bombshell dropped upon us.

A’COURT: Graham and Jan Fisher live in the hills
above Alicante, near Benidorm and in the region called Valencia.
As Jan explains the bombshell dropped when shadowy figures
started making appearances nearby...

JAN: We did see some people walking round part
of the land near our house, measuring. Then we went along to
the town hall, we saw that there was a plan already prepared to
build thousands of houses on a mountainside where there are
fewer than a hundred and we would have to pay thousands of
Euros towards this project.

A’COURT: Graham, how can things like this happen?

GRAHAM: I think that’s one of the problems that people
in Britain are going to find this almost impossible to understand.
They say to you, ‘Well haven’t you got your documents in order,
you must have done something wrong, you must have made a
stupid mistake’. No – everything is perfectly in order it’s just that
there is a law called the Ley Reguladora de la Actividad
Urbanistica which is being used by unscrupulous developers to
simply get their hands on huge tracts of land irrespective of the
fact that there are people already living there or perfectly
legitimate landowners, house owners etc. This is an abuse.

A’COURT: To be clear then, it's the Fishers, as the
existing home-owners who are being asked to pay thousands
towards building roads, drainage and lighting for a huge new
development of homes next door to their land. If they don't pay
they must give up some of their land for a rock bottom price and if
that doesn't raise enough to cover the bill then they face having to
hand over all their land and even their home for auction. Those
caught up in the abuse believe it's so unjust that they're lobbying
the Spanish Government and the European Union to have the
LRAU law urgently changed or revoked. Their campaign is being
led by a retired Canadian diplomat who also lives in the Valencia
region. Chuck Svoboda. He claims new cases of land abuse are
emerging every week

SVOBODA: It is a blood curdling example of what can go
wrong. People come here, they buy with their life savings and
they stand a very great risk of losing their investment. In sort this
is a legalised land-grab.

A’COURT: So why is such a law in place? Well when it
was introduced ten years ago it was to stop land speculators
holding on to valuable sites that could be used for schools and
hospitals or where reasonably priced homes could be built for
local people. But with sales of new Spanish homes to outsiders
now so profitable unscrupulous developers are finding it
irresistible to grab land where they know high value homes will
sell. Local councils could stop it but usually don't, sparking
allegations that corrupt council officials are sometimes working in
league with the developers.

[mattnz]

Another couple facing disaster are Len and Tessa Deacon who've
lived near Benissa on the Costa Blanca for the past nine years..

TESSA: They said that the cost of the infrastructure
would be 112.4 Euros per square metre. Which means it’s just
under £200,000 which includes the IVA.

A’COURT: That’s the local tax..

TESSA: The VAT

A’COURT: £200,000 for the cost of the infrastructure
that they plan to install here which you don’t want

TESSA: No we have everything we need. They say
that if we don’t pay they will take our land. We felt that we just
couldn’t sit here and wait for them to take our land so we took
advice from a lawyer. He said well yes this is what the law says, if
you’re in the developable area you have to pay. We are British
pensioners we haven’t got that sort of money. Hopefully we will
hang onto our house.

A’COURT: The Deacons aren't giving up yet. But for
another near neighbour, Danny Loveridge, it's already too late.
He took me to the site where his 130 year old Spanish home had
once stood...before he was forced out and developers tore it
down.

(in car)

DANNY: We’ll just park here. That was my swimming
pool.

A’COURT: Your swimming pool was where the
roundabout is in the centre of the road.

DANNY: Where that roundabout is is where my
swimming pool was. This was the site of my house. The whole
building was ripped down in March while we were back in the UK.
This foundation work is where the house was.

A’COURT: Danny lost his home under the LRAU laws
when a builder decided his house was on prime land for
development. Danny had tried to fight to keep his property but
eventually threw in the towel after an offer allowing him to get out
with a fraction of what it was really worth. When everything was
totalled up he had lost two thirds of the market value of his
home......

DANNY: It would have been worth about £260,000 –
we came out of it with about £90,000 and that makes us
£160,000 down.

A’COURT: Do you think you were singled out in some
way?

DANNY: No, oh no. There were fifty three people
affected or fifty three owners of land. We were the only British
ones – fifty two of them were Spanish. A lot of them were
absentee owners, in so far as they didn’t live on their land, some
of the land was just vineyards, but we weren’t the only ones
affected.

A’COURT: And now you’ve had enough?

DANNY: Now we’ve had enough – totally.

A’COURT: Danny's experience of the Valencian land
laws is the worst to date but he fears it won't be long before
others suffer a similar fate. He'd like to return to the UK, but the
financial hit that he and his family have taken in Spain means
they no longer have the means to buy the sort of property they
once owned in England. So they feel stuck in the small Spanish
holiday apartment that they moved into after losing their dream
home.

DANNY: I believe that every newspaper that carries
advertising for the Costa Blanca, because that’s the main area
affected, should across the top of its page put a banner
equivalent to a government health warning of buying property
subject to the LRAU laws. That alone may make people think, ‘oh
I’d better be that little bit more careful’ than just jumping on a jolly
three day visit to Spain and buying whatever they see first.

The Valencian regional council has talked about changing the
laws to protect people living and buying along the Costa Blanca,
particularly around election times, but hasn't followed up with any
action and a recent letter from the Spanish Embassy to a British
Euro Mp makes it clear that the Spanish Government is unlikely
to bring about any change. Most worryingly for home buyers it
seems likely that what's already happening in Valencia will spread
to Spain's other regions where building land is valuable - like the
Costa Del Sol where there are the most property owners from the
UK. Chuck Svoboda says unless land laws are torn up anyone
thinking of buying any Spanish property with land attached or in
the countryside should tread very carefully...

[Jeepster]

I know personally of two British people who bought in southern Spain eight or nine years ago and now cannot sell because the bottom's fallen out of the Spanish property market. In addition, one is a retiree, paid her pension in sterling, and over the past year has watched its value plummet like a stone.

[devidfox]

Unfortunately there are an increasing amount of stories emerging from Spain at the moment and the way home owners have been treated. Although I understand that this is a problem that can be faced in many countries; many Europeans would have assumed that it would be safe to purchase property in the EU under all the regulations. I agree that a lot of research needs to be done when investing in a foreign country, and unfortunately this is not done enough by home buyers. Laws are different in all countries and people have bad experiences in countries all over the world assuming it to be safe.