Spanish squatting problem calls forth a new class of distress investor

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The growing squatter problem in Spain is creating a niche of investors who specialise in squatted properties, say industry insiders, but it still takes much longer to sell a property with squatters, and requires a discount of 30% on average.

Squatters in Spain can make your life hell because they are so well protected by the authorities whilst holding one of your biggest assets to ransom, making it easy for them to run up large bills at your expense. As a result, many owners agree to pay the extortion money the squatters demand to get out, whilst others look to sell the property to an investor better placed to manage the problem and costs. 

This makes perfect sense. The squatter problem, like any problem, can be managed with the benefit of experience. The more cases of squatters you deal with, the more you know about the costs and risks, and the better placed you are to judge how much to pay for a property with squatters in it. With experience you can determine the discount rate to apply to squatted properties, which allows you to buy, evict, and sell on with the right return. Investing in squatted properties in Spain could be a lucrative business for the right kind of skill-set, though it also involves dealing with conflict that isn’t everyone’s cup of tea.

So, it comes as no surprise to read in the Spanish press that a new class of distress investor focusing on squatted properties is starting to emerge who are happy to take a squatted property off your hands for the right price. Industry insiders quoted in the press report that a discount of 30% is typical, though it can still take much longer to arrange the sale than properties without squatters because of the risks involved – an average of 10 months. Those are the figures I have seen bandied about in the press, but I would add that it’s all very anecdotal, and lacking research and data, so should not be taken as gospel. 

Distress investors are a solution that will appeal to some owners more than others. Many, if not most of the properties targeted by squatters in Spain are bank repossessions and, to a lesser extent, properties that have been inherited, and are in the probate process. The owners of these properties might prefer to offer a big discount to someone else to deal with the problem, especially inheritance properties that need to be sold to pay inheritance tax. Bank repossessions and inheritance properties can stand empty and unprotected for a long time, which makes them more obvious targets for squatters.

Primary and second-homes are not first choice targets for squatters in Spain because they are much harder to take control of without getting evicted, which is not to say you should not take reasonable steps to protect your holiday-home in Spain from the risk of squatter extortion – you absolutely should. But I can’t see second-home owners being as interested in a ‘distress investor solution’ because it still takes too long to arrange, and the discount rate of 30% is too high to make it worthwhile. But, like I said, nobody really knows if the numbers are reliable because it’s a grey market with no transparency. The Spanish state has created an extortion business model for squatters in Spain that is difficult for investors to judge because there is no reliable data and no rule of law. 

So, distress investors might be the best solution for some kinds of owners of squatted properties, but the Spanish government has recently introduced a new problem to undermine this solution in the form of a new way of calculating how much tax you pay when you buy property in Spain. Since the beginning of this year you pay tax based on a reference value, not the actual price paid, which is ruining the property auction industry, and means distress investors have to pay higher purchase taxes. Obviously this means owners will have to offer investors a bigger discount to compensate them for higher purchase taxes. Sometimes I wonder if the Spanish government is working hand in hand with squatter mafias to extort money out of owners.

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