The first demolition of an illegally built Marbella propertyhas taken place. The unoccupied building is one of 34 illegal properties in the Golf Real Real area of Las Chapas built by Naviro Inmobiliario.

This is not a particularly controversial decision as the only person affected will be the developer, Jose Avila Rocas, who has been indicted in the Malaya corruption case. These Marbella villas would have been valued at over €1 million each.

The land on which the properties was build was a green area that was later reclasified for public service use. Therefore, there was no way the properties could have been included in the new Marbella town plan and they had to be demolished.

I posted another article on this blog about a new demolition law that could affect Marbella property, which allows the demolition of any property that is ‘manifestly illegal’, meaning it cannot be included in an urban plan. This would clearly cover the demolition in this case.

Golf Rio Real is a superb area and I welcome this decision as it can only add value to such a lovely location.

Guy Marrison
www.marrisonproperties.com

The regional government of Andalucia has announced it is to establish a new law governing the demolition of illegal properties. This is a very important announcement as it could have serious implications for any illegal Marbella property.

Once the new law is in force it will allow the Junta de Andalucia to order the demolition of any property it considers ‘manifestly illegal’. This definition would apply to any property that cannot be included in an urban plan, such as the PGOU, or Marbella Town Plan.

This is a very important development for Marbella as the new PGOU is expected to be approved in May this year. There are approximately 500 properties, mostly apartments in Marbella, that will not be effectively legalised by inclusion in the new urban plan.

Under the new demolition law, these properties would be considered ‘manifestly illegal’ because they were built in designated green areas, or municipal land, and cannot be included in the new urban plan for Marbella.

The law includes provisions that allow the Junta de Andalucia to order summary demolition without having to go though the courts. This provision has been included because often developments are completed by the time a case reaches court.

The timing of this announcement is likely to create some urgency in Marbella because the PGOU has been finalised and it is clear that 500 properties are ‘manifestly illegal’. Therefore, demolition of illegal properties is now a very real possibility this year.

I think this is a very good proposition because the nature of Spain’s justice system does not prevent illegal building and the effects can be hugely costly to rectify.

My only concern is that the innocent parties who bought property in good faith will be given relief.

I look forward to your comments.

Guy Marrison
www.marrisonproperties.com

Credit Suisse, the Swiss bank, has predicted that house prices in Spain will fall by 30% from peak to trough.

“In our estimation, there will be a significant reduction of 30% in real terms over the next few years”.

Officially, house prices in Spain have fallen by just a few percent in 2008. However, Credit Suisse notes this and explains:

“House prices on a national level have not fallen yet, particularly the official ones, because some vendors have chosen to maintain prices and the fewer number of sales do not reflect the reduction in prices”.

The report based its argument on the fallen in transactions: 40% fewer re-sales and 27% fewer new properties were sold year-on-year.

Pointing to offer prices and sales prices, the bank estimates that transactions are “closing at much lower prices” than offer prices.

The bank states three reasons for a continued fall in prices: “an over-valued property market, increasing unemployment and tightening credit conditions”.

A very interesting part of the report focuses on the psychology of the Spanish people towards the  Spanish real estate market. In arguing why we haven’t witnessed a fall in prices the bank says this is based on an historical error on the creation of value. In Spain the property market has created “an illusion of money, has a monopoly on investment and low interest rates and high rental costs led to more activity”.

In Spain as a whole the bank estimates 25-30% of property was bought speculatively and the 1.5 to 2 million excess housing will take “3 to 4 years to absorb”.

There is not too much to disagree with here. Broadly speaking I concur that 30% will be the average house price reduction. However, the report covers Spain as a whole and I believe that some areas will be more affected than other and consequently see bigger falls of up to 50%.

The suburbs of big cities such as Madrid and Valencia have much of the excess supply and these areas will see higher reductions in prices over the next few years - they will also take longer to recover.

On the Costa del Sol I would also predict that prices will fall by 50% in some areas. I will cover this in more detail in another post, but Marbella’s corruption scandal in 2006 actually places it very well to recover before other resorts on the coast because no new developments have been built in the last three years.

Therefore, while the Spanish property marketas a whole will like fall by 30-50%, some areas including Marbella are only likely to see falls of up to 30%, with some areas like the Golden Mile perhaps only falling by 20%.

Guy Marrison
www.marrisonproperties.com

We have been rather shocked at how much the Spanish real estate the banks are buying in Spain, so I attempt to quantify it in this post. It is an area I have been concentrating on because I think it is both poor judgment from the banks and preventing a recovery in the Spanish property market.

Direct Property Holdings

According to a report in Reuters, the eight largest banks in Spain acquired €7.8 billionin property assets from struggling developers and individuals. Santander was the most active buying €2.6 billion in Spanish real estate assets.

This figure will be much larger when all banks are include and a conservative estimation of €10-12 billion could be extrapolated from the above figure. This has obviously continued into 2009 so this figure will now be even higher.

Indirect Holdings

Spanish banks have further exposure though the debt for equity swaps they have executed with struggling developers. these include:

Metrovacesa: eight banks led by Santander cancelled €2.1 billion in loans for a 55% equity stake in the developer. The deal valued the shares at €57 each; they were trading at €17 at the time of the announcement. The banks also agreed to buy a further 1.8% each at €57 a share.

Colonial: last year almost 30 lenders to the company were involved in a debt restructuring of €7 billion, which left Banco Popular with a 9% equity stake.

Sacyr Vallehermoso: a huge developer that is struggling under massive debt. A consortium of banks is considering restructuring debt. The banks are forcing sales of assets such as Repsol and the motorway operations - however this may also results in equity stakes being taken.

Habitat: refinanced €1.58 billions in loans last year. Looking for a buyer to inject new capital, but will most likely see the 30 plus creditor banks take equity in return for cancelling loans.

Reyal Urbis: last year made a very canny deal with Banesto and sold about €400 million in property assets; also has a joint venture with Banesto to sell its portfolio. Also seems likely to fall into its creditor banks hands.

These are just some examples of how Spanish banks are increasing their exposure to Spanish real estate by taking large equity stakes in Spanish property developers. The snapshot above deals with publicly traded developers on which there is information, however 90% of loans made to developers in Spain are to the private sector.

Loans and Mortgage Exposure

Outstanding loans to developers and real estate-related concerns amounts to €300 billion, with a further €600 billion in individual mortgages, according to El Pais.

Therefore, as this article shows, Spanish banks are heavily exposed to the Spanish real estate sector. Their decision to continue buying property assets to prevent loans going bad (and avoid having to make provision for more capital) also means they are continuing to assume more and more risk.

I would be interested in hearing from you if you have more information or questions on this subject.

I will also be following up this article with another on why the banks have made these decisions.

Guy Marrison
www.marrisonproperties.com

It has been reported that a prime beachfront parcel on Marbella’s Golden Mile will be sold to a UK-Irish investment fund for €100 million. The 14 acre plot is absolute prime Marbella real estate and one of the very last beach front parcels yet to be developed.

The price values the land at approximately €5,000 per constructable square meter (the land allows a property of 20,000m2). Golden Mile Villas sell for between €10,000 and €13,000 a square meter so is seems a canny purchase. The vendor, the uncle of the President of Syria, has owned the land since the 1980s.

This valuation underlines the importance of location when investing in Marbella real estate. The old adage remains true and that can also be said of Marbella as a whole. While surrounding resorts have seen prices decline rapidly, property prices in Marbella have held up relatively well - particularly established locations such as the Golden Mile.

Our belief is that investors should be looking at established areas such as the Golden Mile, Marbella Old Town, Nagueles and Los Monteros as presenting the best opportunities in 2009.

In addition, quality and location are more important considerations than price. Quality properties in good locations at undervalue will show the greatest (and fastest) return to investors in Marbella property.

If you are an investor and you would be interested understanding more about real estate in Marbella, post a comment or contact us.

Guy Marrison
www.marrisonproperties.com