Spanish promotor took buyers' money before obtaining building permits

Martinsa took money from buyers without obtaining building permission

Following the announcement last week that one of Spain´s largest construction companies, Martinsa-Fadesa, cannot repay its debts, certain irregularities have come to light regarding the contracts property buyers were asked to sign with the company.

More than 12,500 families that have signed contracts with Martinsa-Fadesa are now waiting to see if their properties will be completed or not and many are in the do not know whether they will be able to claim back money paid in advance as it has emerged that a lot of money was paid before any official deeds were drawn up.

The lawyers dealing with claims from buyers have already detected a number of irregularities which may place buyers in a vulnerable situation regarding the legality of contracts. The company of lawyers, Ofilegal, has been the first to set up an association for those affected by Martinsa-Fadesa. Ofilegal says that the contracts it has seen so far are ´poisonous´.

According to Ofilegal, Martinsa-Fadesa took money from buyers without first obtaining the necessary building permission. In one case it received money from buyers for a promotion of properties, Colmenar Viejo (Madrid), from 2004 onwards despite the fact that building permission was not granted until 2006 when some buyers had already paid up to 40,000 euros each.

Ofilegal says that many people are not aware that money paid in advance is insured which guarantees that money is repaid if contracts are broken. However, in some cases the guarantee is about to run out which would make it virtually impossible to recover any money already paid to the company.

Other problems for buyers is that Martinsa-Fadesa has signed contracts with landowners offering them a certain number of properties when building work is completed. However the land is only fully signed over once building work has been completed within the timescale agreed. If work is not completed on time the landowner can reject the contract and Martinsa-Fadesa would in this case lose the land (and buyers their potential new home).

Another serious irregularity has been discovered in a subsidised housing project in Móstoles, Madrid. In this case Martinsa-Fadesa forced buyers to create an owners association (communidad de propietarios) and pay money into it. Up to a million euros was deposited in the association and it has now been discovered that the administrators of this association who are linked to Martinsa-Fadesa have already spent 500,000 euros.

Martinsa Fadesa is also currently negotiating with unions over the redundancy conditions of 234 of its employees, a quarter of its workforce. Unions have asked the company for further information on the locations of those affected by redundancy. CCOO will demand that Martinsa-Fadesa presents a viable plan for the continuation of the company and maintenance of its workforce and UGT will ask for access to documentation. UGT has also informed the Ministry for Work of its concerns regarding the situation of workers in companies that have been subcontracted by Martinsa-Fadesa and has asked for them to be inspected.

Spain's biggest real estate company declares bankrupcy

Construction Company Martinsa biggest defaulter on debts in Spanish history

One of Spain’s largest construction companies is now unable to meet payments on its debt of 5,200 million euros which it owes to some of Spain’s largest banks - Caja Madrid, La Caixa and Banco Popular together with many other smaller financial entities.

The crisis in the Spanish property market began slowly but now it appears to have crashed with a heavy bump. Martinsa, now known as Martinsa-Fadesa, is the largest construction company in Spain with assets of 10,800 million euros, 28.7 million square metres and 173,000 properties in its portfolio. However, it is now unable to meet repayments on debts of 5,200 million euros.

Martinsa-Fadesa was once a symbol of prosperity in Spain but now it has become a symbol of the likely difficulties that the Spanish economy will face in the near future. A similar situation with the Spanish company Rumasa and bank Banesto signalled the start of a serious economic decline in the 80’s and 90’s respectively and it is feared that the problems that Martinsa-Fadesa is now facing will bring about a similar economic slump.

Following a meeting of the board of directors of Martinsa-Fadesa yesterday, which went on until 9pm last night, the company has requested that its creditors collaborate with the firm to help it out of its present crisis. It has announced that it intends to meet repayments as quickly as possible.

In order to be able to do this Martinsa-Fadesa is intending to sell shares. However, this comes at a time when share prices have plummeted and the housing market in Spain is practically paralysed. The president of Martinsa-Fadesa and the largest shareholder, Fernando Martín, will give up his role as chairman of G-14, a lobby group consisting of the largest construction companies in Spain, in order to try and find a way out of the crisis.

Just two months ago Martinsa-Fadesa managed to avoid the suspension of repayment of its debts. It renegotiated a debt of 400 million euros with 45 financial entities including Caja Madrid, which lent 800 millions euros to the company and La Caixa which lent it slightly less, followed by the Banco Popular which lent it around 400 million euros.

The renegotiated debt which was agreed in May this year included a number of requirements that Martinsa-Fadesa has been unable to meet. Martinsa-Fadesa had been hoping to borrow a further 150 million euros for investment in property development abroad. It had believed that the Instituto de Crédito Oficial (ICO) which is dependant on the Ministry for the Economy would lend it the money. However, this organization has refused to grant the loan given the state of the property market in Spain and the dire financial straits that Martinsa-Fadesa now finds itself in. In fact the ICO has explained the refusal of a loan to Martinsa-Fadesa saying that it will not lend money destined to refinancing debt.

Martinsa-Fadesa received the final negative reply from the ICO on 7th July. It had also asked for the load of 150 million euros from a number of banks. It has received a negative reply from all of them and on Friday it sent out a communication asking for an extension to 7th August for it to achieve the 150 million euro loan it so desperately needs. So far the banks involved have not replied

Mortgage holders in Spain struggling with rising interest rates

Around 120,000 Spanish families will be unable to pay their mortgages

Currently there are approximately 60,000 households in Spain that are unable to meet their monthly mortgage repayments and it is estimated that this number could double to around 120,000 over the next 6 to 8 months according to Manuel Pardos, the president of the Association of Users of Banks and Building Societies (Adicae).

According to reports in the Spanish press last week, Pardos said that nearly 4 million mortgage holders, especially those who took out their mortgage between 2000 and 2008, are having real difficulties in meeting their monthly payments following recent rises in the Euribor. The latest rise in interest rates yesterday saw the Euribor rise to 4.25%.

The president of Adicae affirmed that the current situation is dramatic because there are a large number of families and households at risk of losing their homes due to defaulting on mortgage payments.

Pardos explained that people defaulting on their mortgage payments had risen above the 0.3% recorded in 2007 and now stood at 1.5% and could even reach 3% by the end of this year.

According Pardos those most affected were immigrants and families with children between 30 and 40 years old who took out their mortgages when interest rates were much lower.

The president of Adicae said that he considered the measures proposed by the government to tackle this issue as insufficient and said that the idea of extending the terms of mortgages, recently proposed by the Minister for the Economy Pedro Solbes, as ridiculous.

Pardos added that the government was not offering solutions and urged the executive to reform laws governing mortgages and pass a law on over-borrowing, something which was kept back in the last legislature.

Adicae has put forward the idea that the government could subsidize part of the mortgage ‘in the most dramatic cases’ and it has also proposed that financial institutions adopt similar measures. Pardos urged that a satisfactory solution be found for banks. He also stated that it was not in their interests to accumulate a large stock of properties.

See: Mortgages in Spain # Mortgages for non-residents in Spain

Price of new housing in Spain falls

Prices for New Housing Drops for the first time in 15 years

The slowdown in the property market in Spain has led to a situation where house prices have fallen by 1.2% during the first 6 months of 2008. This is the first fall in prices in 15 years according to the Sociedad de Tasación which has been carrying out studies of the housing market in Spain for 25 years.

The report published by this organization which values properties and is used as a reference for what is happening in the housing sector shows that for the first semester of 2008 that prices have fallen in the capitals of 35 provinces. It also finds that prices have risen in just 11 provinces, although not above inflation, and that prices have stayed the same in 4 provinces.

According to this latest study the price of new housing in the capitals of provinces closed at the end of June at an average of 2,781 euros per square metre which is 1.2% less than the previous semester when prices rose by 1.1%. In the first semester of 2007 prices rose by 4%.

Most expensive real estate in Spain

The most expensive city to buy a flat in is still Barcelona, where a square metre costs 4,500 euros despite a 0.4% drop in prices there followed closely by San Sebastian where prices have dropped by 0.6% and a square metre costs 4,035 euros. Prices in the Spanish capital, Madrid, have fallen by 1.4% where a square metre costs 3,916 euros.

Cheapest place to buy a house in Spain
On the other hand the cheapest prices can be found in Pontevedra where a square metre costs 1,848 euros, Badajoz where a square metre costs 1,525 euros and
Lugo where a square metre costs 1,547 euros.

The Sociedad de Tasación concludes that these figures show a significant slowdown in the Spanish housing market above all in tourist areas and areas on the outskirts of cities where there is a large stock of unsold new housing. It also points out that according to the Spanish National Institute for Statistics the number of flats started and finished from January to March has gone down compared to the same period last year.

It also concludes that the considerable slowdown in the Spanish property market is due to the difficulties in finding credit, high prices and recent rises in the Euribor.