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July 2007 news review

Spanish Property News

+ Planning approvals in Murcia fall 84% in June
+ The struggle to sell property in Spain
+ Property prices will not fall say 70% of Spaniards
+ Britain’s Tax ‘Amnesty’ Flushes Out 60,000 Dodgers
+ Spanish mortgage news
+ Latest Spanish property market review

Planning approvals in Murcia fall 84% in June

The downturn in the Spanish property market is reportedly hitting hard in Murcia, where planning approvals fell by 84% in June, according to an article from elconfidencial.com.

The article points out that, based on figures from Murcia’s college of architects (COAMU), and association of developers (APRIM), plans to build 300,000 new homes will not be realised in the expected timeframe.

According to the article there were 30,000 planning approvals in Murcia in the first half of this year, 10,000 less than the same period last year. However, in June planning approvals fell from 8,334 to 1,415 – a drop of 84%.

The question is not if prices will fall, but when: Some say they are already falling, whilst others expect them to fall in the near future.

The struggle to sell property in Spain

Selling property in Spain is harder than ever, and nothing like as easy as it used to be in the boom, according to a recent article in the Spanish daily ‘El Pais’.

The average time it takes to sell a property has risen to between 6 and 8 months, causing problems in particular for people who have committed to purchase a new home, and need to sell the existing home to finance the purchase. A growing number of buyers in this situation are having to resort to bridging loans, putting household finances under even greater strain.

Estate agents are increasingly having to remind vendors to ask realistic prices that reflect market realities.

Property prices will not fall say 70% of Spaniards

A new survey in July from Demoscopia (TNS market research) reveals that 70% of Spaniards do not expect property prices to fall during the next 12 months.

Younger Spaniards in the 25-34 age group are the most sceptical, with only 18% expecting prices to fall, compared to an average of 23% for all adults.

By region, expectations of property prices falls are highest in Barcelona, where 32% expect prices to fall, compared to only 19% in north central Spain.

57% of all adults, and 75% of younger Spaniards say that the high price of property is the biggest problem they have to face.

36% of Spanish adults are owner-occupiers who have paid off a mortgage, whilst 23% are still making mortgage payments. 31% do not pay anything for housing, for example people who still live with their parents.

Mortgage borrowing rises with socio-economic class, from 14% at the bottom, to 36% at the top.

The number of Spaniards who are thinking of buying a property in the next 12 months has fallen 3.5 points compared to 2006. Today, only 8.5% of adults are thinking of buying, of which 55% prefer new build.  4% are thinking of buying as an investment, and 2% are considering buying a second home.

40% of adults think that squatting (okupas) can be justified by the high price of property, rising to 50% of under-24 year olds.

Spanish adults under the age of 50 are the most concerned about the damage to the environment caused by residential development, with 94% saying that environmental protection should be increased, compared to 88% of over-50s (all adult average 93%).

84% of Spanish adults blame the high price of property on speculation, and 83% believe that politicians aren’t doing enough to address the problem.

The high price of property is the main reason why young Spaniards are forced to continue living with their parents, according to 87% of all adults, and 95% of under-35s.

Britain’s Tax ‘Amnesty’ Flushes Out 60,000 Dodgers

Article provided by Blevins Franks.

Britain’s so-called tax ‘amnesty’ flushed out around 60,000 registrations by offshore account tax dodgers deciding to own up and face a reduced penalty of 10% rather than risk suffering the full 100% penalty of tax due. There was a last minute rush as over 45,000 people filed their intention to make a disclosure by the deadline of 22nd June. The eleventh hour surge followed a letter sent by HM Revenue and Customs (HMRC) reminding possible tax evaders of the deadline a week before the actual date.

The response to the ‘amnesty’, officially named the Offshore Disclosure Facility (ODF) and not actually a true amnesty, was slow to start. The ODF was announced in April and three weeks before the deadline only 4,300 had signed up. HMRC’s Director General, Dave Hartnett, hadn’t seemed perturbed, saying that after having studied amnesties in other countries there tended to be a lot of disclosures in the last week. Indeed, in the final days, Hartnett commented that the department’s phones had been “ringing off the hook”.

The letters were sent to 200,000 likely tax cheats taken from the list of 400,000 names supplied by high street banks earlier this year, warning the recipients that the penalties will be much higher than under the disclosure arrangements. The addresses were chosen carefully and where HMRC was unsure of the address, letters were not sent.

Out of the 400,000 names Hartnett said that he estimated that about 100,000 of the banks’ customers owed tax. Now that the deadline has passed tax investigators will scour through the remaining 340,000 people who did not respond and will aggressively crackdown on those where HMRC find suspicion of tax evasion. The penalties will be between 30% and 100% of the tax due and criminal prosecution may ensue.

Hartnett told Taxation magazine that his investigation team was “raring to go” and that their enquiries would be “intrusive and thorough”.

The ODF required people with undeclared interest and unpaid tax in offshore centres to register their intention to make a disclosure by June 22nd. These people have until 26th November to make a full disclosure of undeclared tax dating back to 2001 and pay all the tax, interest at 7.5% and 10% penalty due. For tax amounts of less than £2,500 there will be no penalty.

The full disclosure must include all undeclared liabilities, even any not to do with offshore accounts. Summaries of tax, interest and penalties are needed, offshore bank account details as at 5th April 2006; details of offshore assets held as at 5th April 2006; an offer to pay; a declaration that the disclosure is correct and complete and payment of the full amount including interest and penalty.

Those who have already registered include retirees squirreling away sums, City bankers, wealthy businessmen, a chip shop owner with £1 million stashed offshore, a doctor siphoning off fees and a seaside landlady hiding her takings from the taxman. Hartnett said that a lot of intentions to disclose were in the millions and cover the whole range of taxpayers.

In an article on accountingweb.co.uk Will Heard, head of tax investigations at a chartered tax advisory firm, wrote:

“Notwithstanding that in its own terms this temporary disclosure facility is imaginative and unique it is nevertheless aimed mainly at flushing out minor disclosures from many thousands of people who have accumulated offshore assets out of taxed income and have omitted relatively small amounts of bank interest and holiday rent income….

“The rules are such that anyone who has salted away large amounts of cash offshore from business activity over many years will not be able to make an adequate disclosure by the November 26th deadline let alone find the money (in many cases) within such a short period of time to make the full payment of tax, interest and penalty. Consequently there will be many incomplete disclosures and fraudulent disclosures which may go through on the nod but many will be caught out by HMRC who have until April 30th to make a ‘final decision’ on the disclosure.”

Heard said that there have been many “inconsequential” disclosures which often fell below the minimum £2,500 allowable limit. Some people were not aware that their money was offshore until contacted by their bank. Elderly and sick people have been caused mental anguish over the letters.

Heard continued: “Letters have gone to all and sundry including many people in whom HMRC have little interest but overseas governments may have a more active interest. I am thinking, for example, of UK domicile individuals who live in France but who retain or have had a UK address and whose ‘tax point’ is now France rather than the UK. Will HMRC give privileged bank information which is of no real use to them to the French tax authorities under the mutual assistance directive and what will they get in return?”

The ODF is expected to net the Treasury between £750 million and £1 billion in unpaid tax. People who, in HMRC’s opinion, owe in excess of £500,000 of unpaid tax will be dealt with by the Special Civil Investigations team. Those who HMRC believe owe between £75,000 and £500,000 in undisclosed tax will come under the scrutiny of one of HMRC’s Civil Investigation of Fraud teams, set up specifically to deal with the ODF. Those who HMRC believes have undisclosed tax of less than £75,000 will be dealt with by their local tax offices, which will raise enquiries into their previous tax returns.

It was reported that high profile tax evaders, such as celebrities, are expected to be first in HMRC’s sights as it attempts to make a public example of those hiding money offshore. Hartnett denied that sports personalities and national figures would be targeted for this purpose. ‘We need to provide a deterrent for the whole of society and those 400,000 investors represent a microcosm of society. So we have to make sure our activities are well known and reach out to every strata of society.”

Earlier, Hartnett told the Sunday Times that he was concerned about the way in which offshore schemes had been sold by high street banks.  “One of the things I am concerned about is the extent to which some of the marketing has . . . misled them,” he said.

“We will look at how offshore products have been marketed because part of our job is to try to make sure people understand their tax obligations and meet them, so if they are being misled we want to understand that. It would be an FSA [the UK’s Financial Services Authority] matter and we have a statutory [obligation] to pass information to the FSA.”

Spanish mortgage news

Euribor – the interest rate most commonly used to calculate mortgage payments in Spain – rose again last month to 4.564% (to be confirmed by the Bank of Spain). This will push up the cost of financing a Spanish property purchase with a mortgage from a lender in Spain.

There have now been 22 consecutive monthly increases in Euribor, pushing it up to its highest level since February 2000. Euribor is now 29% higher than it was a year ago, and 117% higher than in June 2004.

For a typical 25-year Spanish mortgage of 150,810 Euros with a rate of Euribor + 0.5%, monthly mortgage repayments will rise by 88 Euros a month to 887 Euros, adding roughly another 1,000 Euros to the annual cost of paying the mortgage.

According to the Bank of Spain, mortgage repayments now eat up 44.8% of gross households income, well above the recommended level of 30%. With interest rates are rising to more normal levels, Spanish households are now financially stretched by mortgage repayments. Having said that, mortgage defaults are still close to historic lows.

Mortgage analysts expect Euribor to keep rising in the second half of the year, though at a slower rate.

The holiday home market will be the first to feel the pinch from rising mortgage rates. Financially stretched Spanish households will abandon the holiday home, or plans to buy one, before defaulting on the main home. The Spanish are the biggest buyers of holiday homes on popular Spanish coasts, so rising interest rates are bound to have a big impact on the property market in these areas.

Base rates

Euribor is derived from the Eurozone base rate set by the governing council of the ECB during monthly meetings presided over by Jean Claude Trichet – President of the ECB. The ECB raised base rates from 3.5% to 3.75% in March, and then by a further quarter point to 4% on 6 June.  BBVA – one of Spain’s largest banks – expects base rates to rise to 4.5% by the end of the year, and Spanish property prices to fall in 2008 as a consequence. UK and US interest rates stand at 5.75% and 5.25% respectively, both higher than rates in the Eurozone.

© Mark Stucklin (Spanish Property Insight)


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