REAL ESTATE BUBBLE HAD TO BURST

Features » Property » Spain / Spanish Real Estate

Staff Reporter / 2010-03-26 16:22:02

Bubble burst

For years unstoppable development fueled a real estate bubble that became the ideal breeding ground for political and business corruption schemes, with ties to illegal construction. And even now, two years after the bubble has burst with a bang and plunged Spain into a deep economic recession, the extent of that wave of corruption is still unravelling the length and breadth of the Valencian region. The common denominator in all the cases uncovered, in places such as Catral, Bigastro, Zarra, Llíber or Montroi, is the fact that they are all small communities whose mayors, in connivance with public workers, engineers, lawyers, developers and notaries, took advantage of the freedom that town halls have to run their own planning affairs.

Besides fattening municipal coffers, local authorities also lined their own pockets by looking the other way as thousands of homes were built on land zoned as rural — often in exchange for hefty bribes.The arrest of the former mayor of Montroi for authorizing the construction of 77 houses on rural land is just the latest in a series of corruption cases that have, on occasion, reached Mafia- like proportions: in Polop, the courts are investigating whether the former chief of town planning, Juan Cano, hired two gunmen to murder the mayor, Alejandro Ponsoda, and have free rein to handle his affairs.
Faced with a lack of discipline at the municipal level and an inefficient oversight by the Valencian government (the Consell), the police and the judiciary have finally stepped in to try to curb corruption through criminal proceedings. Experts agree that the predatory development model of the 1990s must be buried, and the officials involved expelled from electoral rolls. Both the Socialists and the Popular Party (PP), as well as nationalist groups, have been tainted by cases of municipal corruption.
On the other hand, the politicians involved know that, so far, graft has never lost any one of them an election. European buyers have been the main victims of these schemes, especially British and German retirees who make up large communities in the Valencian region. Encouraged by their own thriving economies, they bought illegally built properties almost with their eyes closed. The swindles were helped along by a lack of ethics on the part of local agents who knew the operations were unlawful. When the deception became public knowledge, the duped owners began demanding that their homes be made legal and requested compensation for damages.
Alarm bells regarding the legal insecurity of Valencian real estate first went off following a complaint filed by a group called Abusos Urbanísticos No (or, No to Town Planning Abuse). Enrique Climent, its president, underscores that the flood of corruption cases that have surfaced in the last three years are partly the result of that original complaint. “Let us not forget that the Spanish justice system is slow,” he says, adding that the origin of the problem lies in Valencia’s town planning laws. “The problem began with the LRAU [Ley Reguladora de la Actividad Urbanística], a zoning law that evidences a complete lack of judgment or logic, and which enabled a bunch of people [the developers] to behave like rustlers and appropriate the land that belonged to individual owners. One party [the Valencian Socialists] approved it, and another party [PP] enforced it for 11 years without regulations.”
Since 2002, Climent’s group has filed over 20,000 complaints — 80 percent on behalf of residents of the Valencian region — with the European Parliament’s Petitions Committee. This body sent delegations to the area in 2004, 2005 and 2007 to verify the reports of real estate abuses. Their conclusions were published in what became known as the Auken Report, a devastating document that explained all the “traps” that lay hidden behind Valencian town planning.
“They said that these alleged instances of abuse were isolated cases, just a few black sheep,” says Climent. “But time has proven us right, and the herd no longer looks so white.” Climent also highlights that the buyers of illegal properties, especially the British, bought them in good faith. “They bought them because their economic situation allowed for it, but they risked everything in these operations, and sold their homes in exchange for an illegal property in Spain. They were tricked. In one case, an English citizen who bought a home in Montroi signed two contracts, one in English and the other one in Spanish, but it wasn’t just the language that was different — so were the clauses.”
Manuel Alcaraz, a professor of Constitutional Law at Alicante University and president of the group Plataforma de Iniciativas Ciudadanas (or Platform for Citizen Initiatives), says that the root of the problem is the philosophy behind all the building. “It was all the result of a construction model based on making money in the short run, which leads inescapably to speculation and corruption,” he says. Another factor, adds Alcaraz, was the complicity of Spanish society. “This complicity reached the very top of the political parties, especially the PP,” he says. “No effort has been made toward regeneration or political ethics. The PP built its political empire on opacity.” Alcaraz also thinks that a change in legislation is in order. “They should introduce unjust enrichment as a crime. It can’t be normal for public officials who make €3,000 a month to display such flashy lifestyles.”
Alcaraz points to the ineffectiveness of control mechanisms as the key to understanding why town planning corruption became so generalized. This lack of oversight begins with town halls, where the departments for zoning discipline have done nothing to curb the excesses, and goes all the way up to the Consell.”
Carlos Arribas, an environmental activist and expert in real estate issues, agrees. “The proliferation of illegal homes on rural land has one root cause: the passivity of the Consell in exercising its powers, as described in the 1994 law on land zoned as not for building. That law includes enough mechanisms, such as the declarations of Community Interest Zone, to have put a stop to all the illegal construction,” says Arribas, the spokesman for the Alicante branch of the environmental group Ecologists in Action.
Another expert points to the deregulation of zoning laws, the lack of oversight and the connivance of public workers and other professionals as the cause of real estate corruption.

Honorio Fernández, president of the consumers association AECU, which filed a suit that uncovered a construction scandal in Catral, says: “Montroi, Llíber… it’s all the same, and a result of the successive deregulation of the zoning laws that began under former Prime Minister José María Aznar and that extended to the Valencian region and its permissive LRAU, which was implemented without further regulations until 2005,” he explains. Fernández notes that the cooperation of several types of professionals was essential for the swindles to work.

Tags: Real Estate