Spanish Banks are putting aside more than €150 Million Euros as the Courts turn on them for their part in the Off Plan Property disasters of the last decade.
The Spanish property boom of the early 2000s gave way to an equally big implosion in 2008. Some 7 years later as the dust continues to settle and the media has moved on, thousands of ex Pats are still affected. A law passed last week in Andalucía, allowing houses built “off plan” by developers during the boom to become legal means that for many the nightmare is coming to an end. For many others however the night mare continues.
Buying “Off Plan Property” is effectively buying a plot of land on which a house will be built. Prior to the 2008 crisis, property developers offered great prices on these plots as a way of financing the project. In an ideal market there would be no loser, the buyer makes a large gain by buying early on and selling once complete, and the property developer is able to build with the finance from selling a percentage of properties before they are built. Regrettably for those who bought in Spain during the property boom, which was not the ideal market conditions, there were three main problems – local Politics, global Economics and the Law.
The political problem was the local councils who were keen to see their communities growing, more houses meant more people, and more people means more revenue for local business and for the council themselves. Builders and developers who had not applied for planning permission were allowed to continue building. Planning rules were changed to change agricultural land into urban land. Then elections came, along with new Councils and the rules changed once more. Buyers found that the planning permission promised for their new home was rejected, or worse that the urban plan had been altered and their homes now stood on agricultural land once more. Habitation Licenses, legalizing the home were not granted, and therefore the owners were not entitled to water or electricity, further down the line there would be fights with the demolition crews.
In retrospect the Economics at the time were a big issue too. Consider that in Spain in 1986 debt represented around a third of disposable income and by 2005 some thirty years later, it had risen to 105%. Also of note is that in the fourteen years from 1990 to 2004, the average length of mortgages doubled from 12 to 25 years. Spain then, by 2005 had become a country living in debt. Factor in that housing bubble in Spain expanded at such a pace from 2000 that by 2010 there were nearly 25 million new homes on the books. Property prices rose by nearly 150% in that period. Its no surprise then that Developers and Builders were so highly geared when they began projects and in many cases, rather predictably, ran out of funds.