Spanish Real Estate: No Home, No Compensation

Leonard and Helen Prior sold their house in Britain and spent over a million dollars building a beautiful retirement home in Spain. Their new abode was skirted by …

Leonard and Helen Prior sold their house in Britain and spent over a million dollars building a beautiful retirement home in Spain. Their new abode was skirted by a beautiful garden and a heated swimming pool. With anticipation of a peaceful and comfortable retirement, the Priors named their oasis "Tranquilidad." They could not have imagined that they would eventually be left nothing but a garage among the ruins of their dream home. After the regional government canceled the building permit issued by local authorities, their property was declared illegal and was demolished by Spanish authorities. Their ordeal represents the international real estate investor’s worst nightmare. 

Now, a long year later, many expatriate homeowners in Spain are still living in fear of losing their homes that were declared illegal. Recently, in Andalusia region’s town of Almeria, a crowd of 500 marched in protest, according to the Telegraph (UK). These protestors are calling for a suitable solution to the crisis, but there are no indications yet that any solution is in the works.

Root of the problem

The problem started when town halls issued building licenses that didn’t comply with the regional governments’ regulations regarding construction on "rustic land."

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"Rustic land is largely found in the countryside, usually some distance from the local town in whose area it belongs," according to the Land Register, a construction project management firm. "Unlike urban land, where the rules are laid down by the local town hall, it is the regional government who makes the rules regarding the minimum size of the building plot in rustic areas."

In Andalusia’s case, the discrepancy between the town hall offices and regional government led to the development of large areas of the region’s countryside without following the general plan set forth by authorities. Mayors turned a blind eye and illegal building thrived. As often is the result in such corruption cases, innocent buyers, mostly retirees who were lured by the dream of a relaxed life in Spain and had no knowledge of what was transpiring, were ensnared.

By the time the regional authorities decided to intervene, it was too late for many investors who had poured their life’s savings into their new homes. Homeowners whose houses were declared illegal argue that they bought their homes in good faith. They shouldn’t be penalized for others’ faults. Authorities, on the other hand, argue that they have to follow the law.

"We are here to force him to take notice, to give us an explanation as to why this has happened to us when we did nothing wrong and to ask him to make things right," demanded Mrs. Prior as she held aloft a placard emblazoned with the words "No home and no compensation," they told the Telegraph.

Current situation

Leonard and Helen Prior have received no compensation for their loss, and now many others who built in Spain fear facing the same fate, losing their dream retirements and their life savings.

In the mean time, Spanish residential prices went down by 3.2 percent in 2008 bringing the long lasting housing boom the country was experiencing to a halt, according to the Associated Press. This is a steep drop for a market that hasn’t seen such a decline in the last 15 years. The last time the market registered a year-long decline was a paltry 0.4 percent drop in 1993. In 2003, for example, prices shot up by as much as 18.5 percent. 

Residential real estate transactions are down by some 37 percent in November compared to the previous year, according to Spanish Property Insight. The latest numbers from the country’s National Institute of Statistics also show that destinations popular with international buyers have seen some of the steepest drops. In Costa Dorada, for example, residential transactions fell by a dizzying 54 percent. Costa Blanca, The Balearics and Catalonia all saw sales drop by almost half. While these declines are in part a result of global economic forces, it is a sure thing that the threat of wrecking balls will only decimate further the rapidly disintegrating investor confidence.

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