thinking of walking away from it....things are going to get worse

I see from an earlier post that someone mentioned they wanted to give up their deposit and walk away from the development..there are some different opinions on the thread about what would happen if you did this....does anyone actually know what would happen?
1. do you just lose your deposit (or payments made so far)
2. will the developer pursue you for the balance as contract has been broken
3. How will a spanish developer manage to pursue this if you are living abroad?

I am afraid a lot of people are considering this action and am interested to know what the reaction would be.. i really believe this crisis has barely started and we are now seeing french/german and english banks struggling , spain will follow suit and i imagine the developers could also be suffering BIG TIME... does anyone have an idea how much prices are falling? there will not be many buyers out there now so how can the developer sell any more phases??....im sorry to be doom and gloom but the knock on effect of this is going to be huge, unless you are in this for the long term or buying as a place to live then getting out now could be the answer. i cant see any growth and am dubious about the rental demand...any thoughts or comments on the above ?

regards
Dave

As I understand it you lose deposits paid to date but it is highly unlikely the developer will pursue you for the balance of the purchase price. Having reread my contract there is no mention of any personal guarantees etc and so cannot see how they can pursue the 'debt' in the UK.  Anyway i have a meeting planned with my solicitor in a few weeks and intend to clarify this very point (even though i have no plans to walk away at this time).

I believe as others on this forum that long term, Corvera will be excellent but as for short term returns we may as well forget even getting close to our money back for at least 5 years. Rentals will be non existent until the golf course is fully completed and in my opinion the rental demand will only begin to pick up when the new Intl airport opens and access to Corvera will be so much easier and quicker than from san javier.  

Regards
Kevin

Hi,

In no way am I thinking of walking from my contract as I see Corvera is somewhere I want to live for a number of years. My angle on this is my ability to raise the mortgage in the current economic climate . I understand that the Spanish banks will  normally only accept loan repayments to 30%-35%  of  total monthly income. If they stay rigid to this I can see a lot of buyers finding this difficult to achieve.

I thought that the developers mortgages might give you an easier ride but I understand that this will not necessarily be the case.

For me, I still have a mortgage on my house in England and one on the house that I currently live in so a third mortgage would be impossible to justify with these multiples. It might be that I need to take hard decisions and sell one or both of my other properties but will only do so as a last resort. The alternative is to seek a ´rich´guarantor but this might not be easy to achieve or  provide additional assets as security.

My sympathies will go out to those buyers who might struggle to convince the banks that they can be given a mortgage but I hope that Calidona will deal with these cases sensibly as it is not in their interests to lose the deal. .

Do others have a more optimistic view about the way the banks will deal with spanish mortgage applicants in these difficult times?

I think that under the current economic conditions I will be struggling to get a mortgage. I purchased 2 apartments as I was going to 'flip' one, well that's looking unlikely. So I am considering putting a close trusted relative (with a sufficient income)  on the deeds, I have heard that it only takes sufficient income from one of the deed holders to enable you to get the mortgage, this in law will make them part owners and also responsible for the loan ie mortgage repayments.

kev

At the moment the only positive aspect of this situation from an investment point of view is the fact that we did not complete in June 08 as originally promised. 
It's my belief that the actual resale value of these properties may well end up less than 30% of the original purchase price - take a look at the heavily discounted resales that aren't shifting.  Add to this the other expenses of completion - 7% IVA, mortgage fees, furnishing, air con etc.  Makes walking away seem like an obvious choice for an investor.

short term, yes. long term, no.

I am an investor with 2 properties on the Corvera development.  I am concerned that people do not understand how serious this situation is.  The bottom line is that the banks are going to be EXTREMELY unwilling to provide mortgages on these properties for anyone who cannot prove that they have more than enough monthly income to cover all of their commitments - they will not take into account any rental income possible and this situation will be worse by this time next year.  For anyone thinking they will sell a property in the next 3 years - forget it - I've tried for two years - you cannot give these properties away (literaly).
My projection is this: At least 30 - 50% of the people who have paid deposits will walk away - I know at least 10 investors with more than 1 unit each - how will they possibly get mortgages on them?  They are already proposing to green over half the development - so they obviously can't sell the rest of the properties.  This leaves completion likely on only 25 - 40% of the original planned development - the rest being empty or greened over.  How are shops and facilities to be supported with the lack of people and properties - how can the developer raise the cash to complete even this much?  
Who on Phase one is willing to complete before everyone else and risk being exposed to having multiple mortgages on a half finnished development which is empty of people?  I won't be completing until I see evidence that the development is well finnished and full.  Unfortunately this is likely to be a vicious circle with no one willing to complete first.   In any case - I doubt whether I'll be given a mortgage now in any case even though I have a good income and assets, it's just not worth the bank taking the risk, so I'm preparing myself for a large hit.  My only hope now is that Caledona goes bust before my properties are completed and I can get my money back from the bank.
Sorry to be so morbid, I hope I'm wrong as it's going to cost me £80k.
Is anyone here going to complete first?

Good post AEC. You're right, the only good thing that can emerge from this is if they go bust before we complete !! The alternative is going to be horrendous.

Dave

Hi AEC, I would imagine your post reflects the concerns of a large proportion of the investors at Corvera, I know the life style purchasers have a different perspective and will see all of this as being negative . 

I've also had no luck in selling my 2 properties, although I hope the situation improves in the next few months ( for example large cuts in interest rates). If you were to  walk away, what happens in practice? I assume they would sell the property for what they could get , if say they got 60% of original value, would they then chase you for the outstanding 10%?

If I was to get a mortgage, the banks I believe will only give you 70% of what they believe the value of the property to be, does anyone know what this is likely to be in the current circumstances? Regardless of official figures, properties values  have gone down big time, will the banks follow the 'official figures'  or the current real values? I f properties have gone down say 25% and we can only get 70% of the current value we will all have to come up with another chunk of money.

Calidonia also have a reputation for completing their developments very slowly which will delay the properties resale potential, and as AEC has stated the fact that they have not sold all the properties ( and are not even attempting to sell them) is a concern as far as the completion of all the facilities are concerned, after all they are there to make a profit and under the circumstances less apartments sold means less income, and cut backs may need to be made.

Unfortunately, realistically I believe that rental income will be insignificant in the first couple of years, so the properties will be run at a considerable loss. In the long term I'm sure prices will bounce back and the development is likely to be a success, it's just a question of whether you can financially survive in the current climate in the short term.

kev

I am interested in AEC's comments  'They are already proposing to green over half the development'.  Where has this information come from?  is this just gossip, or have you received notifcation from your Solicitor or Calidona.   Also everybody has bought into the development for the whole package shops/golf/hotel etc   I find it very difficult to believe that they would or could just build phases 1 & 2 and not bother with anything else.   I  am also shocked about the comments now being said of hoping that the developer will go bust so they can get there money back.    I appreciate that times are difficult at the moment, and that everybodies circumstances are different.  

Em

Hi everyone,  The greening over comment came from another post saying that it was on the Corvera website - I have to admit I haven't checked this out so I could be wrong.  My fundamental point is not that the development is a bad one or that I don't want it to succeed, but that unless things change dramatically, then fear of losing more money will lead many not to complete, potentially leading to the senario I outlined.  
My reading of the contract is that you will lose any monies paid so far and there does not appear to be a clause stating that they can persue you for the difference - I don't know if  they could given that you didn't get the property?  They simply get the right back to sell it again and you loose the money paid so far.
Regarding rentals, I have two properties on Roda Golf on which I completed  over a year ago, both are on long term lets netting me 900euros in total for the two, but nowhere near the mortgage (interest only) of 2100euros plus the community fees (rediculous) of 120 euros per month.  The rental will NEVER cover the mortgage and associated costs on any of these properties, the purchase price was too high so the yield will not be enough.  
Large cuts ininterest rates by central banks will not affect the LIBOR rate which is the rate at which the banks lend to each other (it rose today even though the Bank of England cut interest rates yesterday).  This will take time - probably years, and the banks will not pass on the rate cuts to customers untill this rate comes down.  I cannot see a time when we return to the easy credit we had in the last few years to enable others to take on these investments - I would imagine that this is why Corvera have given up selling the properties.  
Believe it or not I am an optomist and I do hold on to the hope that Corvera will be everything I had hoped it would be, I just think that people need to be made aware of the potential downside as I wish someone had done for me when I got involved.  Calidona will have to have buckets of spare cash floating around and no reliance on short term debt to see this through and if they do then they are one of very few building companies that have.
As a wise economist once said - a long term investment is a short term investment that went wrong and in the long term we are all dead.

I agree that things are definately going to get worse.  We bought 2 properties on Corvera and were going to sell both before completion.  This will be impossible now.  We too are hoping that they go bust before completion as we are sure that a mortgage in the current climate is going to be out of the question.

Our Solicitor has told us that if we walk away we JUST loose the deposits and cannot be chased for any more money.

Trudie

I do understand everyone's worries, but it is still 7 months away until completion starts for Phase I.   As work on the development progresses people may see things differently.  The grassing over information was from another post on this forum and it was stated as being a temporary measure until things improve.  Lets not panic just yet

Anita you seemed to have been a quiet force on this site. Appreciate your thoughts on the other thread at the top of this section... a lot has been discussed. What do you think?

Thanks for your post AEC, it is what I have been saying/thinking, but put more forcefully.Property development is ALL about managing cashflow,and Calidona have been able to do that so far because they purchased the land outright, and therefore were able to wait as long as necessary to begin building, i.e. until they had enough cash deposits to finance the Phase 1 and 2 construction costs in my opinion. I am not panicking ..yet.. Anita is right 9 months IS a long time, but I'm afraid that some people will be in a much worse position by then with unemployment due to rise to over 2mill in the UK . 

I have bought 2 properties, and I notice a number of other people have as well. Good marketing MRI ! Corvera say they have "sold about 1600 out of 2400 properties, with 45% going to Spanish buyers. That means about 700 have been bought by "others". If half of those people bought 2 then about 450 people have a big decision to make here, not including the Spanish buyers.I agree that the number of final completions could be small indeed. Perhaps any shortfall could be made up by Phase 3 and 4 purchasers being offered Phase 1 and 2 unsold properties as a swap? This would be better all round as it would mean that there would be a bigger "nucleus" of residents from the beginning. The proximity of Murcia city and the airport I agree should be good for people trying to rent their "spare" apartments on long lets,but I agree with previous posters about the likelihood rental income won't cover outgoings.

The chances of getting your deposit back is ZERO, and is a very false hope to give people. This money has been spent. I think the facilities will eventually be built but I think we'll be lucky to get firm dates on anything but the Clubhouse as Corvera reps have indicated already.

As for the interest rate situation. I work in the London money markets.As I said a few months back the ECB WOULD be cutting rates by late Autumn, and they have done so in a co-ordinated action. This Friday the US banks started lending to each other after a heavy prompt from the Federal Reseve. LIBOR's over there will fall this week,by as much as 1%.This will drag UK and Euro LIBORS down too,probably not as much though. I think the BoE will cut rates in Nov by at LEAST 50basis points (1/2%) maybe as much as 1%... so that will help people on trackers and variable rates too.By Christmas LIBOR over Base rates will have fallen 1% as well I think.The ECB will cut rates again also, but they are really dragging their heels. As the poster from HBOS has said though, there isn't a lot of cash about for lending so deals will be on pretty harsh terms for at least 12-18 months in my view.

As for hoping Calidona go bust...I sincerely hope that doesn't happen. Everybody seems to talk a lot about their "guarantees.. any idea which bank is giving you those guarantees? I did look at the original one, but I can't remember the name, it was THAT memorable. I can guarantee you though that if that bank went bust then it wouldn't be worth the paper it's written on. Banks around the world have lost $400 billion on Lehmans because the "insurance" they bought (called credit default swaps CDS) hasn't been honoured. It's being paid out at 9c in the $ if you want numbers.

This may all sound gloomy....well there's no escaping that. I'm usually the most optimistic person in the room but I have never seen anything like we are going through now in almost 30 years in the City. It's all about SURVIVAL everywhere,corporate and individual. 

Wait and see is I think the only option right now. The building is progressing, so Calidona are still paying the wages. We don't have to pay any more money until our decision next year. I am still expecting to complete on at least one of my properties and have decided to get the A/C installed in that.. that's MY commitment. ( I looked at the "joint" approach with some interest but decided that I wanted it done right, with recourse to the developer if it went wrong, and also that I'm not sure how many of the group might in the end actually complete.) Anybody else want to say how "commited" they are at this point in time ?????

Chris

Hi Agfox,
I agree with everything in your post, the government action on the crisis does appear to have had an affect on inter bank lending so reasonable rates may be available by completion time.  It seems to have been assumed that I am very neagtive about Corvera, but this is not the case.  I have 2 properties on Roda and they are fantastic - I hope that long term they will prove to have been good investments.  I have other investments (not affected by financial crisis) which mean that I can afford to take a long term view, I merely want to raise awareness among others of the potential downside of this investment.  The Investor/Lifestyle split suggested by others is rubbish - we are all in the same boat and without one or the other of these two categories, the development will not work.  
I do not want to see Caledona fail as this will affect Roda, however, The best chance of getting back deposits onCorvera is if this happens - the bank deposits have not been spent be the developer as they are held in Trust by the bank for the purchaser and the developer can borrow from the bank on the strength of the sales on the development as proved by the amount of the deposits held in the bank. This is what I understand to be the system - I may be wrong.
If everything is done i.e. commercial centre/hotel/facilities and a reasonable number of people are able to complete I do think Corvera will be a great investment.  I bought my properties so long ago and at a good price so even a 30% fall in price from their peak will leave me able to borrow the full balance.  Others will find that if the bank value their properties at 30% less than they paid and allow only say 70% loan to value (if they are lucky) they will have to put another 30% in cash into the property to complete.  If this was my senario, I wouldn't do it.  The associated costs of completion on a 250K appartement on Roda were over 35,000euro (more if you take the developers furniture and air con.) with the 7% tax, fees and furniture - people may find that the have to put another 65,000euro into the property just to complete.
I will be waiting until they are beating down my door to complete and if the 18 month deadline passes before thet point I will be taking a refund.
On a side issue - don't take the developers air conditioning especially if you have 2 properties it is way over priced - we just phoned a local business for Roda and they fitted it at half the price after completion.  In fact do not buy anything from the developer as we furnished Roda for half the price with far superior furniture - we even hired an interior designer from La Mang Club who did it all for us- the developer will rip you off at any opportunity.

AEC - thanks for that post re RODA A/C and furnishings.
If possible, can you PM with the details on following:
1. Assume you get a full guarentee with the A/C;
2. Name of A/C company;
3. Name of La Manga interior designer;
4. Did you get all the furniture from the same place - and where from.

Any info would be appreciated.

Kenny 

Hi Chris, thanks for a very interesting post.  Unless something major happens or we can't get a mortgage, we definitely intend to Complete.  We are not going for the Developers air conditioning, we have just received a very competitive quote from Chris' contact, PCT Airconditioning, with four years guarantee.  Just one minor point though there are only 1800 properties at Corvera and the developer has said that 1200 have been sold.

Anita.

I too will definitely complete

I wouldn't bother it's all too risky