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The Spanish property market and "The Brit in a muddle"
has become an entertaining subject for the media. However, in two
investigations, one held by the EU and the other by the Spanish
government, it was found that where fraud had been involved the
victims were just as likely to be the Spanish owner.
In April of 2002, the Economist magazine constructed a new global
house price index, stating that since 1980 Spain has seen the biggest
rise in house prices in the world - in real terms. Up until the
start of 2003, Spanish house prices had been rising at the rate
of 5 per cent per month but with the pound continuing its loss against
most of the major currencies, particularly against the Euro, property
prices started to slow. According to the experts, the pound was
unlikely to recover fully against the Euro if only because the British
government did not want it to and as we enter the year 2004 it would
appear that they were right. From a high of 1.66, the pound fell
at one stage to 1.30 but over 2003 recovered to its present situation
of 1.41 +/- Euros to the pound sterling. A good case for the weaker
pound is that it will make it far easier for the UK to join the
Euro.
At any exchange rate, Spanish property has proven to be a good
investment, with many owners property doubling in value every two
or three years. Even now, there is still enough time to acquire
a Spanish property at a reasonable price and as mentioned, as an
investment, few things in the past have proved better.
In the past three or four years, the housing market boom throughout
the world has been driven mainly by low interest rates. In addition,
the stock market slump has encouraged investors to shift their money
out of shares into the relative safety of bricks and mortar. In
Spain, the market, whilst driven in part by the above, nonetheless
remains mainly stimulated by the desire of Northern Europeans wishing
to find a place in the sun for themselves and their families. To
a large degree, property investment is being protected by the Spanish
climate.
The investor has by now heard about the frightening piece of legislation
tantamount to robbery in practice along the Valencia coast: The
Spanish Urban Development Activity Act 1994 or the UDA. Sometimes
the effect can be devestating, but with a little information it
can be easily avoided.
What typically happens is that a developer will buy rural land
that gives him more than 50 percent ownership of a section that
he will then apply for urbanization, the remainder of which may
or may not comprise other people's homes. The developer will then
submit an infrastructure plan that receives quick approval because
he can accurately tell the town hall that there is majority consent
for the project - the majority being the developer and few, if any,
other owners. The town halls are often happy to approve the plans
because the urbanization is accomplished at others' expense and
allows them to incorporate the land and the infrastructure into
their town planning. This gives them a potentially larger tax base
and sets the stage for further development. The builders profit
from the work they carry out and from the rise in value of their
previously undeveloped land.
This law was designed as a method of being able to hack through
the maze of regulations in the Valencia province which had slowed
development to a virtual standstill. The intention was to give local
town halls the authority to prevent individual landowners from holding
up major developments, rather along the lines of a compulsory purchase
order in the UK. Unfortunately, it was only a question of time before
the new piece of legislation was being abused by developers who
saw that they could achieve their building ambitions and have others
sponsor them. To make it worse some unsuspecting Brits have fallen
into well timed traps and are picking up the bills.
Those most affected are in the Javea area on the Costa Blanca.
What are the risks?
If you buy a property around known land grab areas near the popular
areas of the Costa Blanca then make sure it is on a legal urbanisation.
This should ensure you have no future problems with unscrupulous
speculators.
How to beat it:
If you buy a farm or big piece of land and a developer decides
to include your property in his project then your land will then
become revalued as urban. This will mean its value will increase
many many times over. For example rustic land can be as cheap or
cheaper than 2000 €uros an acre. An acre of land on an urbanisation
around 30-40km radius of Valencia cost from around 120.000€
and sharply increase to many times that as you move towards the
city.
Also it is interesting to note that any land plot over 10 000m2
can be legally built upon normally between 1.5%-2% of its total
mass. For example: you can build a 200m2 house on a 10 000m2 plot.
When buying a farm or property with land you can particion the
land into 10 000m2 plots, each one of which will then become urbanisable.
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