What is Real Estate

Writen by Vince Barnes

In light of the Valencia Land Grab Law is the Valencia Region worth investing in?

Many have invested in previous years and have seen terrific returns on their money. For example a property bought 4 years ago has grown in value by some 300%. However in light of the recent coverage of LRAU – Valencia's land grab law – is Valencia a safe place to buy?

What is LRAU?

LRAU is a law ratified in 1994 to release land for development for social good. Initially the Law was drafted with good intentions. One of the fundamental powers it bestows is expropriation – compulsory purchase, of the property and it is this area where much of the abuse occurs.

LRAU ONLY applies Rustic Land (Suelo Rustico). If you live on urbano land you will not be affected.

Development in Valencia and the role LRAU plays.

The Valencian economy has thrived on Agriculture, textiles, ceramics, fishing and shipping. However, recent years have seen a dramatic reliance on tourism and construction. Fuelled primarily by foreigners seeking a "cheap" place in the Sun, a development boom has taken place to the detriment of these industries.

The textiles industry is facing stiff competition from cheap Chinese imports – witness recent reports of €70M worth of textile imports into Valencia and in Elche demonstrations held against the import of cheap Chinese shoes.

The Citrus industry is under threat from its own government by the introduction of the Golf Law and has been wholeheartedly welcomed by the Valencian Government – although the existence of such a law was emphatically denied by Rafael Blasco until his own office leaked a report to the press.

So what?

The introduction of this law and its association with LRAU brings the threat from the costal areas inland. Why – because there is little land left there to site a golf course by the coasts anymore. Where do the developers now look to build – Inland.

The basic premise of the law is that it gives carte blanche permission to build golf courses and adjoining urbanisations. But the building of these is likely to be the core of the next regional elections in order to maintain any sort of economic activity, since all other factors are in decline. The proposed golf law makes it possible to use rustic and even protected land, for this "high social purpose", which would be of interest to very few property owners, let alone the current population.

So what again?

Town halls have already proven largely incompetent of making decisions. Benissa is in debt to the tune of €33M, growing by around €3M annually. The Valencia region €10Bn and growing at €500M annually. These figures illustrate fiscal imprudence by those very offices who would be given more powers – perhaps to fill their ever decreasing coffers to landowners detriment.

More seriously – town halls have proven to be innately corrupt. For example, in Pego the former mayor has been in prison for such offences. The mayors of Javea and Fleix have been reported for reclassifying land on which they owned a substantial amount.

Conflict of interest? You bet there is.

Is it not somewhat worrying the very people who have previously shown such dereliction of duty are now being given even more power to abuse their electorate?

Where does LRAU fit in?

What is a "poor" town hall to do? Little money from Central Government, rising debts, declining tourism and industries dying rapidly. The previous solution of devaluing the Peseta is no longer an option.

The quick fix solution lies in re-classifying agricultural land and making it suitable for building. Once town halls apply for reclassification they expropriate land from the owners and ensure the development goes ahead.

Inland we're all right Jack – aren't we…?

Think so? Ask yourself this question

Where could you place a golf course?

Take a look at the greenery around that give so much pleasure. How long before you'll be looking onto the first tee from your new apartment you involuntarily swapped for your nice house and beautiful orchard?

Is it likely to happen?

There are plans to build a further 67 further golf courses in the Valencia region. Already 30+ are awaiting approval. Where are these golf courses going to go?

More worryingly, should the construction industry fail, then the Valencian Economy will falter. And this will have dire consequences.

So the Valencian government pushed by promoters and constructors have a vested interest, if not an absolute need, to promote development and overcome the resistance of owners who naturally, if naively, believe what they invested their live savings in, is actually theirs. Shouldn't landowners realise the benefit to the community as a whole and make their "social contribution", even if the community turns out to be developers and cash strapped town halls

Who are the main players and how do they benefit?

There are 4 main players
1. The Local Town Hall – Benefit short term from building licences long term, more local taxes
2. The Generalitat of Valencia – Building and sales tax
3. The Developer/Promoter – benefit from exceptional profits. The more landowners are charged the more profit, setting aside prime land and later selling this
4. The Land Owner – The increase in value after urbanisation compensates for lost land and fees paid – well it does if you believe the Hype. But what if the land owners wish to remain? – how do they benefit?

The Process – how it should be

• The Town Hall decide they need more land
• The Land Owners are informed about plans
• The Town Hall request permission from the Generalitat of Valencia
• The Generalitat of Valencia order a feasibility and Environmental impact study
• Once complete they grant permission to Reclassify
• The Town Hall inform The Owners and announce plans in local, regional, National press and the European Journal (in accordance with EU contract law for public service contracts) in order to ensure competitive tenders
• Once tenders submitted The Town Hall select winning Developer based on price, ability, financial solvency etc
• The plans are announced to The Owners who have an opportunity to respond
• The Owners can present an opposing plan
• The Owners are presented with the bill and how much land they will lose
• The urbanisation proceeds

What actually happens?

In most cases the above procedure is completely ignored - owners are told about the plans once approved and then have 18 days to respond. Many are absent or don't speak the language, so don't know until it's too late. Town Halls make no attempt to inform the owners - it isn't in their interests.

Environmental impact studies are seldom conducted leading to water shortages, immense traffic and parking problems, sewerage and rubbish. Most towns have a problem dealing with current rubbish let alone added future burden.

These studies are important for the rights of residents to basic services. Isn't this what living in a European Country grants us?

EU contract law is continually flouted. Town Halls DO NOT announce plans nor make them available for competitive tender. Where there is no competition the cost is highly inflated and questionable.

This impact on costs owners pay and the land they lose.

And where is the social benefit - the reason for enforcing LRAU – oh yes green areas, new shiny town offices, police stations – to deal with the influx of new residents, who've paid a tidy sum to developers who ultimately profit along with Town Halls.

And the landowners. Why should anyone care about them – weren't they stupid enough to buy a plot of rustic land and who cares if every law to protect them has been broken in the process.

Well actually we all should because by doing nothing we are helping to promote these abuses.

This article is continued read article "Land Grab Abuses - LRAU PT 2, or to see the article in its entirety visit http://www.spanishproperty-direct.co.uk/article_LRAU.htm

Vince Barnes is the owner of http://www.SpanishProperty-Direct.co.uk – a website aimed at informing buyers about the process of buying in Spain and keeping up to date with news and regulations affecting the Spanish Property Market. He has also just published the book – "The Insiders Secret Guide To Buying A Property In Spain – The Book Estate Agents Don't Want You To Read" – available at http://www.spanishproperty-direct.co.uk/book.htm.