Capital, Property, and the People

Spanish New development repossessed by a bank
New development repossessed by a bank

Editor’s note: New rules from the European Banking Authority could set off a fresh spiral of Spanish house price declines and economic pain away from the best locations, making courageous reform more necessary than ever, argues Campbell Ferguson, a FRICS chartered surveyor and head of Survey Spain – a survey and valuations company. In this two-speed housing market the best locations are recovering, but there’s still a lot of distress in the rest of the market.

As of 1st October, Bank of Spain, under instruction from the European Banking Authority, is demanding that Spanish banks revalue more realistically their property related debtors. All predictions are that this will force the banks to be more aggressive in selling off these non-performing loans and heaps of slow to shift properties. The only realistic way the banks can do that is by reducing prices. Many of the properties that they’ve already sold at large discounts are to private funds, but these, though they are off the bank’s books, are still on the market. So, we can expect to see prices being affected yet again by bank forced sales. Which, of course, will make everybody’s portfolio of property worth even less. It’s not good news. New buildings are springing up in the best locations, but outside those, where the bulk of the bank held properties lie, we are likely to see a stagnation of prices as the market becomes even more over supplied with bank owners becoming even more desperate to sell so that they can survive the next ‘stress test’.

The banks have also been hit by the effectively negative interest rates, meaning that they can’t make a margin on many financial transactions, thus reducing their profits. As the banks have also been forced to increase their capital to survive the various ‘stress tests’ and there is little new money coming in, there can be little money going out into the active economy. In fact, the increasing of capital sucks money out of the economy and locks it within the financial system, not being available to fund the working economy.

So the working economy has less capital available to produce and create jobs and without production and jobs and the contributions and taxes that they pay, the country’s and indeed the whole EU’s economy is gradually stifled. The central economy has less to invest in capital projects and less working capital available, reducing business production and employment even more.

It’s a sad spiral that we are sliding around and something radical is going to have to happen; some deeply innovative and above all politically courageous thought and action that’s needed. Well, that’s not a very encouraging thought at the moment either! With internal in-fighting in the opposition parties and a current interim government not prepared to answer to parliament or the judiciary or people of Spain to apologise for its corruption, how are the people and businesses of Spain supposed to react to encourage the radical change that is required?

Spain has a huge untapped asset – it’s 20+% unemployed, including almost 50% of those under 25 years of age. The cost to the country is huge, but just think if they were all working, positively contributing to the economy, society and yes, themselves! They should be thought of as ‘self-employed’. The words ‘employed’ and ‘unemployed’ should be abandoned. Everyone should be ‘self-employed’, with work contracts with clients, being their current employers. If you don’t have a principal client, you go out and get a number of smaller ones and work for them. Psychologically, it shifts the responsibility and benefits onto the individual. Others more capable than I can work out a fair system of paying taxes, including Social Security payments as they are just tax in another name in that they provide a centralised fund to be allocated to works for the common good. But corruption will kill it all and, like a business where its character comes from the boss, the country has to remove corruption from the top if it wants to clean up its economy and society. Just think of the harm that has been done to probably millions of individuals and families by the siphoning off of huge amounts due to the ERE scandal in Andalucia alone. If that money had gone into society and not been locked up in a few individual’s bank accounts, probably offshore, it would have had a hugely encouraging effect. Spirals can go up and down, so that money should be used to create more business and thus create opportunities for more enterprise and so on upwards.

That’s the courageous action that Spain needs. But are the politicians, who set the character of the country, up to it? And if not, what’s the alternative?

Campbell-Ferguson-survey-spainCampbell Ferguson is a FRICS Chartered Surveyor in Spain, runs Survey Spain SL Chartered Surveyors created in 2003, and helped set up the Survey Spain Network in 2009, an association of 10 independent RICS chartered surveyors living and working in all the coastal areas of Spain, the Balearic and Canary Islands, the Portuguese Algarve and Gibraltar. Survey Spain is the administrative centre of the Network, providing a ‘one stop’ contact. Survey Spain forwards and ‘peer reviews’ work instructions to the members of the Network. The Survey Spain Network carries out valuations for many international banks and other worldwide finance houses and directly assists UK Government departments.

Thoughts on “Capital, Property, and the People

  • I agree with Martie Quick. My experience of the past week has been of another tax having been invented very recently (for Valencia city, at any rate) which will be evaded with all the expertise that the Spanish have developed in doing so.

    As late as mid May the architect who I had retained at the time told me that ‘obras menores’ such as the renovation of my small flat in Valencia city – old for new in kitchen, bathroom, wiring and plumbing, no change of use of any rooms, no alteration of the exterior, no structural work – did not need any permits or documentation. Both builders asked to quote said the same.

    By the time I chose my builder and reviewed the details of the project, in mid June, a document called ‘Declaración de Responsibilidad. Tipo ll’ had been created. The builder would not start until it had been issued.

    To issue this form, I had to go back to the architect, whose services I had dispensed with as unnecessarily high-level for the project, for him to complete it. The form has to be endorsed by The Architects’ Association of Valencia. This cost €726. The fees for the Ayunt to process the forms and issue ‘the licence’ is another €560 or so – a fixed fee of €140 + iva for the rubber stamp and 4% of the nett building quote for ‘the licence’. This €1280-odd total is 10% of my builder’s gross quote.

    What comes to mind, contemplating this absurd addition to ‘docamenti’, are the following

    1) The money to pay for this document will be deducted, as far as I am able, from the spend on the project. Already I have eliminated a total renewal of windows, which was within the budget originally. I myself will renovate existing. The builder will lose work and the window supplier sales and the Treasury iva. The Ayunt will get less because the builder’s quote will be reduced by the amount of that work.

    2) The substantial cost of this ‘licence’ will result in a) small projects like mine going ahead without applying for it. This might well entail bungs to tradesmen and neighbours who might complain. As my Spanish friends keep telling me about this way of operating, “Es normal”. b) Projects which are too big to hide will fiddle the quotes to reduce the 4% liability.

    3) Projects to renovate dog-eared city centre properties like mine will not be done because buyers in that slice of the market will not be able to afford the Tipo ll, if, for some reason, they can’t work a fiddle. If the properties are bought by developers, see both 2a) and 2b).

    The introduction of this licence will benefit a handful of architects – in fact I suspect it is a stitch-up between The Architects’ Association and the Ayunt – and fees to the Ayunt will disappear as revenue to Ayuntamientos tend to do.

    • Mark Stücklin says:

      Hi Chris, fantastic comment and analysis. Do you mind if I use it as the basis for a new article? It deserves more attention.

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