A politically charged building scandal has tainted the Marbella property market reputation. Now the new mayor is spearheading a legal clean-up – but some British owners may still lose out.

August 2007

Is Marbella’s property market on the brink of a comeback?

It was the Spanish playboy Prince Alfonso von Hohenlohe who put Marbella on the map in the 1950s, when he founded the swanky Marbella Club and brought his jet-set friends from Madrid there. In recent years, however, despite the perfect climate, the town’s reputation has been under a cloud. Corruption has been so rife within the property market, buyers have been driven away.

Now, after a long-running clampdown that has resulted in scores of arrests, and local elections designed to usher in a new era of honesty at the town hall, Marbella is trying to rebuild its reputation and restore buyer confidence, particularly among foreign investors. It has a new urban plan from the regional government of Andalusia, based in Seville, and an amnesty is being declared on many of the illegal developments.

The person responsible for the clean-up is the town’s new mayor, Angeles Muñoz, 47, the Popular Party candidate, who came to power in May. “We are going to remove the legal insecurity so that buyers can feel confident,” she says. “To do this, we will have to legalise practically all the 19,000 properties that were built with illegal licences.”

The task that her new administration faces is a daunting one. “British purchases are down something like 70% since 2003,” says Chris McCarthy, head of Viva Estates, a local agency. “Property prices peaked that year, and our average sale price of €325,000 hasn’t budged since. June was the worst month in five years, and a lot of agencies are downsizing or closing.”

“Leading up to the new millennium, we had 20% per annum capital gains for five years, but it’s been downhill since 2001,” says Diana Morales, who heads an eponymous high-end agency. And, though the proposed amnesty will benefit many British buyers innocently caught up in the scandal, others are likely to see their holiday homes bulldozed and their hopes of a life in the sun crushed.

There has been no political honeymoon for Muñoz. A GP who started out in local politics, she served as a junior minister in the previous national government, and the party she represents is the only one not implicated in the corruption scandal. Within months of her election, however, her political opponents are already muttering about potential conflicts of interest – her Swedish-born husband, Lars Broberg, is a local businessman with property investments.

Marbella’s problems stretch back to 1991, when a local developer, Jesus Gil, was elected mayor. Though initially popular, having boosted employment and cut street crime, Gil oversaw a culture in which anything from building permits to municipal contracts could, allegedly, be bought. Illegal licences for an estimated 30,000 properties are thought to have been granted under an urban plan he instituted in 1998.

Gil, who left office in 2002, died in 2004. Investigations into his years in office began shortly afterwards. There were dozens of arrests – those taken into custody included the then mayor and her predecessor – and among those now standing trial on charges of money-laundering and corruption is Juan Antonio Roca, Gil’s town-planning chief. He is accused of leading a gang that obtained £15m in bribes and bungs. In what allegedly amounted to a development free-for-all – provided the payoff was right – properties were built on land earmarked for parks and public facilities. Now, in return for an amnesty on properties built in such areas, the town “must be compensated with land for new infra-structure and facilities”, the mayor says.

Developers who benefited from illegal licences granted under previous administrations are expected to provide the land – a total of 118 hectares is due to be handed over. “Most of the developers have already agreed to do this,” Muñoz confirms.

However, 752 properties will not be legalised, because planners argue that they have been built on essential public land, so 377 owners – some of them Britons – are facing the prospect of these properties being demolished. Judicial proceedings are in progress. Meanwhile, the new urban plan, and the amnesty deal it contains, is due to get final approval from Seville next year.

Many of the properties that may be razed are in the vast Banana Beach development, just outside the town. John Toomey and his Spanish wife, Marisa, both 61, bought there in 2004, when the cost of a three-bedroom flat with sea views such as theirs had risen to about €500,000, and the prospect of any illegality was not on the horizon.

“We took great care with the legal search, using a local lawyer,” says John, a property lawyer himself, from Harrow. “There was a building licence from the town hall, and there was no record of any problems in the property register – which, by law, should give you all the assurances you need.”

The Toomeys are understandably bitter about the prospect of losing their seaside home. “The government in Seville was happy to take tens of thousands of euros from us in stamp duty, but now they say our property is illegal, while arbitrarily legalising thousands of others,” says John. “Seville is treating us like criminals, and has never expressed the slightest sympathy, even though it is to blame for the situation. We trusted the system, only to end up innocent victims of the public administration’s corruption and incompetence. One British couple who own in Banana Beach are in their mid-eighties. It is their only home, but they need to move to a nursing home, and can’t sell. It is a terrible situation.”

The new mayor – like much of the town’s population, according to recent polls – hopes demolition will not occur. “I do not believe that demolitions are an appropriate solution for Marbella, and I will do everything in my power to protect the interests of innocent buyers,” she says. “We will appeal against demolition orders.”

At best, however, that will leave some owners, such as those at Banana Beach, in legal limbo. Given the length of the dispute about the legality of such developments, some of the affected owners would prefer swift demolition and a compensation package.

“I haven’t been able to get a straight answer from anyone in five years, and this looks set to drag on,” says Russell Ellis, 63, a pensioner from Sidmouth, in Devon, who in 2002 spent €189,000 on a two-bedroom flat on Banana Beach. “I would prefer a decision tomorrow – even a bad one – so we can move on. But I’m not holding my breath.”

To some in the property industry, the unlucky owners in the Banana Beach complex are scapegoats. “What will happen in cases where the developer can’t, or won’t, compensate the town hall?” asks Morales. She fears that the solution will only spark more confusion, although she does admit that July was “an excellent month for the local market”.

There are voices of optimism in some quarters. “The worst is definitely behind us,” says Desmond O’Connor, head of Alanda Homes, a blue-chip developer and the Spanish division of McInerney plc, Ireland’s largest home-builder.

Michael Hornung, director of Marbella Club Real Estate, the property division of the exclusive club, also feels that the town is about to turn the corner. “Wealthy buyers are coming back,” he says. “They know Marbella is cleaning up its act.” Building work slowed during the corruption investigation, but John Fleetham, 47, a developer from Sheffield, has since invested £1m in three plots, with planning permission, in the upmarket Sierra Blanca urbanisation. “I believe Marbella will bounce back,” he says. “If you have made any money in the UK, this is where you want to be. This place is aspirational.”

Muñoz, meanwhile, plays up plans for a new terminal and runway at Malaga airport, and, eventually, a high-speed train link to Marbella, which will boost visitor numbers.

James Hewitt, 49, the former lover of the late Princess Diana, is one newcomer who couldn’t be more enthusiastic. He arrived here a year ago, with plans to establish a bar-restaurant, and is renting a flat while he gets the business off the ground. “Whatever the recent problems, the quality of life here is unbeatable, and that will always attract people,” he says. “My quality of life here is three times better than it was in London, for about a quarter of the price. With the mild climate and outdoor lifestyle, I feel as if I’m living 600 days a year.”