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Spanish Property Crisis - A Solution?

Published on 8/18/2011 in Investing in Spanish Property

A few days ago, Andrew Linn of Culture Spain’s wine and food Blog sent me an intriguing link concerning the Spanish property crisis – albeit that it pertains to the US.

An answer to the property crisis in the US, it seems, is to demolish the over-supply of housing stock (as you can see from this article) which some large companies in the US are starting to do. The question is: could this be the way forward for Spain and a way of mitigating the current Spanish property crisis?

I presume, of course, that the reasoning behind demolishing excess housing stock is to reduce the over-supply and thereby prop up housing prices.

Frankly, the idea horrifies me!

Indeed, there seems something quite immoral about destroying perfectly good properties (if that is what is suggested) when there are homeless people around. Rather than demolish them why not give them away to the homeless or at least to homeless people who can show that they can afford to maintain the running costs of the properties concerned. This could be done by raffle or by application and would provide much better PR for the companies concerned than destroying sound property (surely?) and would not impact one way or another on property prices if it was done carefully.

Breaking up a house I am curious as to what everyone thinks?

Perhaps in Spain there is an argument for demolishing all illegally built housing? That may make better sense and alleviate a perennial problem of property in Spain. Certainly, property illegality in Spain is endemic and does nothing for the reputation of Spain as somewhere safe to buy (not helped by the generally poor standard of legal practice when it comes to the conveyancing of Spanish properties).

There are also, perhaps, arguments for demolishing some of the worst and most hopeless property developments in Spain. However, I suspect, that would be a difficult matter to put into practice given the subjectivity of ‘worst’ – worst looking, worst build quality, worst design etc. Meanwhile, what is a ‘hopeless’ development? I think we all have some pretty good candidates but someone must have thought that they were worthwhile before investing in their construction.

Well, I am not so sure about my last argument – as most of the financing of building projects in Spain was undertaken by the banks and many of their judgements (dare we use that word about their decisions?) were nothing if not ill-considered.

What do you think – is demolishing surplus housing stock in Spain a good idea? Do you have some candidates for demolition or do you think the whole idea is absurd and that it is no solution to the Spanish property crisis?

If you were our esteemed Presidente (Zapatero) what would you be doing in Spain now – to correct the housing crisis?

Written by: Nick Snelling (CultureSpain.com)

About the author:

I am a journalist and author of four books (three of which are about Spain) and I live permanently in Spain with my family. Indeed, I have lived in the Valencian mountains of Spain (not far from Gandia) since 2003, although I have known Spain well since the mid 1970s. See my website about Spanish Culture at www.culturespain.com

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Comments:

paintpot said:
Monday, May 7, 2012 @ 8:17 PM

Pulling down empty incomplete property is a good start to addressing Spains problems.A large percentage of these will be illegal in some way, thus prevent them from becoming a nightmare to unsuspecting purchasers. Next sort out the rest of the rot,Lawyers,Legal System,Town Halls,Notories,until this is done or seen to be done there is no hope for the future. Spain has been found out bigtime.Unless they have the desire to go back to carts and donkeys they had better get started.

Patricia said:
Saturday, August 27, 2011 @ 11:15 PM

Como tu quieres:
I only want to say that I entirely agreed with your post, the first one. It took courage (on this forum) to say what you said. That is why I mentioned "enemy territory" LOL.
I also agree that changes are needed in certain areas (after all life is about change no matter where you are).

Patricia

The Woodbug said:
Saturday, August 27, 2011 @ 2:04 PM

The economic ills of Spain can't be resolved overnight. Demolishing a few buildings is like trying to stem the flow of blood from a gaping wound with a strip of Elastoplast. The root of the economic problems must be established and as far as the property mess is concerned, it is simple. They were caused by those crazy halcyon days of the 2002-2007 era that has now come to an end.
I lived in Costa del Sol in 2005/6 and it was unbelievable. Land that was only fit for grazing Goats on was selling for telephone numbers, new ‘villas’ most of which were (and still are) built to very poor standards using outdated materials and techniques, were snapped up at hugely overvalued prices. People were building houses on land designated as Poligonos and only had Almacen licences and even dafter – banks were lending on this illegal process.
It was said at the time that if you had a pulse and a passport – you could have a mortgage.
Self-certification was rife and loans were also granted to the unemployed as several sources would supply documentation – e.g. ‘copy’ wage slips, P60 etc ‘for legal and accounting purposes only’!
Today, the average Spanish worker can only secure a mortgage that would allow him to buy a 65-70m2 home and the only areas that it is possible to buy a larger unit is in Extremadura and Castilla la Mancha, as the prices are much lower in these regions. So we can’t blame the locals, can we? The fault rests firmly on the toes of the greedy investors, promoters, lending institutions and of course the corrupt officials who allowed and assisted such a free for all.
We have to face the hard facts whether we like it or not and one such fact is that property prices will drop further and keep dropping until the market finds it’s own level of recovery. Nothing we can do can alter this, unless a miracle happens and all the investors decide to commit financial suicide by buying again in Spain, and the Spanish banks are prepared to take another kicking – unlikely methinks!
The cure is for the government to start demonstrating responsibility and pass legislation that will stand up, radically alter the buying process and issue insurance backed guarantees of safety and security. This will take time and gaining the confidence of buyers and investors will take even longer so buyers will not be back in a hurry.
All the nonsense in the press claiming that property prices are rising, that the bust is over and buyers are back is simply propaganda generated by those with an interest in politics and property. Sorry to be such an apparent prophet of doom, but we have to face the facts and more importantly - reality.
It’s a shame that the true meaning of reality went down the pan during the ‘property boom’

goodstich44 said:
Friday, August 26, 2011 @ 11:06 AM

I see what you are saying, but with respect that's history now. Spain needs to look to the future by looking at the mistakes and start putting them right. Compensation for those cheated, good building regulation, bank regulation, an end to corruption and a justice system that can be trusted would be a good start!. What is missing now is trust. Too many good people from the UK and other countries have followed the rules but been treated very badly by the Spanish system. Until they can feel confident that they can buy safely as they do in the UK, Germany, Holland etc, then only a few will buy and nothing like the amount who would if they could trust the system.

como tu quieres said:
Thursday, August 25, 2011 @ 10:59 PM

perhaps, perhaps, perhaps...
When a country that is mainly agriculturally profound it certainly not geared to sudden influx of so called urban extranjeros in a very pp party dominated region, everything goes. But this collapse of property market may call for changes in many aspects of Spanish life at regional and national levels. Time will tell.

As for Patricia -No I am Not in enemy territory, I am in Viva España. A little truth is hard to swallow. :)

como tu quieres said:
Thursday, August 25, 2011 @ 10:57 PM

perhaps, perhaps, perhaps...
When a country that is mainly agriculturally profound it certainly not geared to sudden influx of so called urban extranjeros in a very pp party dominated region, everything goes. But this collapse of property market may call for changes in many aspects of Spanish life at regional and national levels. Time will tell.

As for Patricia -No I am Not in enemy territory, I am in Viva España. A little truth is hard to swallow. :)

goodstich44 said:
Thursday, August 25, 2011 @ 4:06 PM

CTQ
Zapatero and Blanco are doing nothing to help Spain's failing property market and nothing to help those they have cheated through corruption, land grab, lack of bank guaranteeS, lack of regulation, and a shameful justice system. If Spanish nationals can't see that then they are indeed Naive.

Patricia said:
Wednesday, August 24, 2011 @ 3:18 PM

Whoohoo, CTQ! You are in enemy territory and that is subversive talk! LMAO.

Patricia

Como tu quieres said:
Wednesday, August 24, 2011 @ 2:35 PM

All those with mortgages and homes were greedy, and materialistic and with an who usually failed to do there homework before landing themselves with high mortgages, remortgages, other types of loans and some with huge credit cards debts, This is a society that boasts to be learned and affluent and quick to sign on the doted line. Thy only think of today, tomorrow and the near future Rather than the length and breath of the commitments, so they dug a hole for themselves. so they try to become more destructive ways of getting out of the situations that they let themselves in.
I am sure Mr L R Zapatero, Mr Jose Blanco and the Spanish nationals are not that Naive.

como tu quieres said:
Wednesday, August 24, 2011 @ 2:05 PM

Follow the American Example and you become a destructive society. They are very good at destroying anything and everything to get what they want. where ever they go they make there presence obvious as you just have to witness mindless destruction of all creations.
it is no different to the mindless destruction that takes place on the streets of Britain,Egypt or Libya, he ecological,social and human suffering caused by some is irreversible and can take decades to rebuild. So please do not follow the destructive practices just because this problem is also caused by them.

goodstich44 said:
Monday, August 22, 2011 @ 5:43 PM

Chris
well said. You have identified the reality that many fail to accept. How much more does it take before the message gets through that until Spain cleans up it's act, there will only be a dribble of new buyers compared to the huge potential! Why do people think the overbuild situation is the way it is? Doh!

Chris Thorpe said:
Monday, August 22, 2011 @ 12:06 PM

Demolishing property to stabalize prices can only be the idea of a demolition company! How on earth would this make any difference to Spanish property prices? There are estimates of 1m plus units on the market with more being dumped everyday by banks and developers. The problem is two-fold:
1: The asking prices are still far too high - The Economist puts Spain as the 4th over valued house market in the WORLD at 43.7% overvalued.
2:The second part of the problem is the lack of interest from global investors who should be taking up a lot of the investment slack in coastal areas. They will not touch Spain as even if property in Spain could be valued properly, the planning laws are so unreliable and ill-defined that they won't risk theirs, or clients money here.

Property valuations are so diverse that there is no reliable guides or yard-sticks for buyers and some estate agents and sellers are still stuck in a 2006 price timewarp. The world press will seize every opportunity to highlight the backlash of weak planning laws, rogue builders and the ever-present corruption affecting the victims of the system and until this is stopped and a cast iron guarantee put in place, Spains problems in the housing market sector will remain. Surely a partnership with private enterprise the take some of the properties to create a supply affordable social housing, rest homes and social buildings should be looked at as private enterprise can raise funds that Government at all levels do not have access to. New ideas and co-operation I believe is the key here, but not until Spain gets its own house in order. We have been involved in several projects of this nature in UK and elsewhere in Europe - it's do-able but the risk here is far too high to get involved.

Patricia said:
Sunday, August 21, 2011 @ 10:10 PM

Fred Smith:

Much of what you say makes good sense. At least it is a constructive idea. However, you are up against the army of people whose objective is to keep as much bad publicity as possible going against Spain in order to stop people from coming to this country. Fortunately people who want to come to Spain will come anyhow.
Patricia

Malika zouine said:
Saturday, August 20, 2011 @ 5:49 PM

Maybe this suggestion might be of help!

Kei Homes the retirement home specialists have identified several properties on the Costa Blanca suitable for retirement housing/sheltered accommodation including in and around the Torrevieja area, El Campello area, and on the Costa del Sol. Some of these properties have been empty for some years and rather than let them fall into further decay, why not utilize them?

As there is a shortage for this kind of accommodation, we are looking for investors or individuals who would benefit from such accommodation and if you are looking for this kind of property, please contact us to discuss your requirements.

These properties will be available on a life-lease/freehold and rentable basis, and we are looking for enough people to make the idea viable.

Please ring Malika on 680137429 or email kei@kei-homes.co.uk. www.kei-retirement.com

Robert said:
Saturday, August 20, 2011 @ 9:05 AM

You have touched on a controversial topic Nick.

Nick - "I presume, of course, that the reasoning behind demolishing excess housing stock is to reduce the over-supply and thereby prop up housing prices. Frankly, the idea horrifies me! "
(Other considerations are maintenance costs, taxes, and public safety.)

Nick - "…immoral about destroying perfectly good properties…"
(Bloomberg article) “…tear-downs are in varying states of disrepair, from uninhabitable to badly damaged… would cost too much to make them livable”

Nick - "…why not give them away to the homeless or at least to homeless people who can show that they can afford to maintain the running costs of the properties concerned."
(Are not most homeless people homeless due to a lack of financial resources?)

Nick - "…would provide much better PR for the companies concerned than destroying sound property…"
(Bloomberg article) "Uses for the land include development, open space and urban farming…"

While I commend you Nick for raising awareness about the homeless and property issues, as a journalist, I find your interpretation of the Bloomberg article curious.

Unfortunately, any solution will offend someone. Would an equitable and cost effective combination of demolish and legalization be most effective?

Sadly, a correction to these problems is not soon in coming.

Robert

Fred smith said:
Saturday, August 20, 2011 @ 1:18 AM

I know this may sound a stupid idea but one of the former posts was about doing an immigtaion boost from the UK like to Austrailia in the 60's.

My son has a very good well paid job as a teacher in the UK. He has two young children and wants a good life for them but he cannot get onto the housing ladder in the UK, he lives in the South and can get a professional mortgage with just a 10% deposit but even with this he still cannot get a mortgage as he cannot save enough for the deposit with prices so high in the UK and rental prices for a small flat at £800.00 per month.

In Spain we have areas with thousands of houses empty.

I have always said if enough people from the uk moved to Spain and bought up all of the cheap properties here, it would create it's own economy, just like Austrailia in the 50's and 60's

Spain could offer migrants from Northern Europe so much and I am not talking about those wanting to retire but those wanting to create a vibrant society with young families.

Houses are affordable here for first time buyers, we just need to create the environment and young families would be here in droves to bring real prosperity and a great way of life.

We already have the infrastructure, with brilliant roads, hospitals etc.

In the UK young families just exist, trying to pay the bills in a damp cold climate. Here they could buy an affordable home and have a great outdoor life just as Austrailia becond years ago but this time only two hours away from the UK.

Pam said:
Friday, August 19, 2011 @ 7:47 PM

We have an apartment near Marbella, we bought if 6 years ago, and to cut a long story short, fell into the illegal property hole. We faced a long period of not knowing if it was going to be demolished or not. I am under the impression we have been lucky and now have the full habitation certificates, although we have never had anything in writting yet.

Over the last 3 years, we have noticed the vast increase of unfinished properties - just shells left to decay, now a target of vandalism and graffiti. It is such a mess, to a beautiful stretch of coastline. Why would anyone want to keep an unfinished property, will these properties ever be completed, the answer I think is No .... so why not just demolish them, the land be given back to the community and lets put the beautiful countryside back to what it looked like many years ago, or using the space to encourage farmers back before the big developers made their money, sometimes illegally.

As to making them into affordable housing for the less fortunate, I read an article sometime ago that some of the homeless and families on low incomes would not be able to afford to run two bedroom apartments, which many of the unsold complexes are because they are too big having been designed for holiday rentals, rather than affordable housing. So would these then become an area of decay and look even more an eye saw.

I think the developers should be made to demolish them and tidy up the area, build a recreation area which everone can enjoy. The Costa de Sol has become a concrete jungle of vacant properties, some which may never be lived in.

David H said:
Friday, August 19, 2011 @ 7:13 PM

Knock them down, dispose of the millions of tons of rubble, restore the sites to their former natural state or create stunning parkland, and provide a solution to the unemployment problem in one fell swoop. Perfect - wait a minute - this is Spain not paradise!

Busot said:
Friday, August 19, 2011 @ 7:05 PM

Agree with what Almeria says. It sounds a good idea to demolish the "newly built" surplus properties. Gives us mortgage payers "a ray of hope" for the future. Might also create jobs for some of us on the "paro". In a way a bit like "wiping the slate clean" and then starting again. In the meantime Zapatero or whoever should bring in strict laws regarding property developers, banks, town hall planning departments and especially lawyers. Reforming the entire legal system would help then we might all experience some justice instead of so much deceit.

dartboy said:
Friday, August 19, 2011 @ 2:25 PM

maureen what you must remember is alot of these homeless people only a short while ago had jobs and houses and were working hard but with no contract.Then the job went and with no benifits so did everything else,they are not ordinary tramp down and outs

maureen said:
Friday, August 19, 2011 @ 1:39 PM

I do not want homeless people to be given properties on my urbanisation. What if they let the properties fall into disrepair and refuse to pay their community charges. However I would support properties being let out to them with a tight legally binding contract that if they fail to maintain the properties and do not pay community charges they face immediate eviction.

leMotais said:
Friday, August 19, 2011 @ 1:02 PM

After seeing the TV program on Camposal,Murcia it looks as though hundreds of properties are falling down anyhow. Worked stopped there four years ago and the firm went into liquidation, cancelled all its debts and has resurrected its self again. Given the housing shorted in England why not send them to Spain like the £10 pom to Australia. UK Gov. has no problem paying benefits to families who live in Poland so why not Spain.

Mojito said:
Friday, August 19, 2011 @ 12:55 PM

"and would not impact one way or another on property prices if it was done carefully."
I don't know how you would do that carefully. The remaining unsold half of a luxury apartment block near to us was given to a local housing trust. Within weeks the place was a shambles. The owners couldn't sell their apartments at auction at half the price and years later they are stuck there paying a huge mortgage.

santoshan sangha said:
Friday, August 19, 2011 @ 11:35 AM

i think it is a very good idea to demolish surplus property, i am sure that land could be put to better use and stabalize the house prices.

Almeria said:
Friday, August 19, 2011 @ 10:25 AM

YES PLEASE!! We own a lovely flat, well built 40 years ago so solid and in a good part of town but because of the enormous glut of shiny new blocks of flats we can't sell ours. The banks push their properties first so even if we found somone who'd like our flat we couldn't trust a bank not to try to change their mind to buy a bank property at less money. We have a 108,000 mortgage and with two small children we can't sell for less than that as we have no savings to make up the loss. We are wanting to live with my Dad who is moving out to Spain as we are struggling and can't pay for our general day to day living without our parents help (how embarrassing in our mid 30's!) and we can't hand the keys back as my husband is spanish and his Dad is a guarantor on our mortgage so the bank would chase him (months after his wife has died and he is in ill health himself with his own mortgage!).
Knock to the ground at least 4 empty blocks in our town and maybe we'd have a chance of survival!!! If they are left empty they'll be ripped to bits by people looking to sell for scrap metal etc. or have squatters - lovely neighbours to help sell the rest of the block, not. I say go ahead, bulldoze hundreds of blocks and get back to a manageable supply and demand!!!

ian cook said:
Friday, August 19, 2011 @ 8:13 AM

rather than house the homeless why dont councils look at some of the old and scruffy looking buildings in their towns and is a developer is considering "getting out" move those families into new builds and then demolish all the old run down properties. that way you do have people that can afford the homes and hopefully take a little more care of them. For me this is a last resort option!

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Spanish Property Crisis - A Solution?

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