European Property Rights and Wrongs - Diana Wallis MEP

Purchasing off plan: buying a property not yet built with only the developers’
designs to go on may seem like a major risk in these more careful times, but in
the property booms of the early 2000s the opportunity to make big profits buying
and selling on seemed like a risk worth taking. The off-plan price was significantly
cheaper than the built price (to reflect the risk that it was not built) and investors
would then aim to re-sell at a profit once built. The problem sites are created
by developers going bust and failing to finish the development, leaving some
residents living in a ghost town with no amenities, or not being built at all due to
bankruptcy or to a change in administration in local government sweeping away
previous abuses in issuing permits. The purchasers will often have paid in instalments
and face a long and complex legal battle to recover their payments or face
living in a concrete jungle with no mains electricity or sanitation.
Bank guarantees: For purchasers buying off plain in Spain Ley 57/68 required
developers to bank deposits or instalments in a bank guarantee account where
the funds would be kept separate and returned to the purchasers should the
developer file for bankruptcy or fail to finish the property for another reason.
Unfortunately some banks have refused to honour the scheme; either for technical
reasons, such as the correct paperwork not being completed by the developer,
or because they insist that the beneficiary obtains a court order before they will
pay out. This is causing hardship to those affected who need to find the up front
cost of lengthy litigation proceedings and legal advice in order to obtain the Court
order, the costs will be recoverable in the end but many will not have the funds
upfront, or the appetite, to take on litigation.
Planning legislation: The so called “land grab” laws in Valencia illustrate the
risks posed by the LRAU and LUV planning laws, a model that was copied in other
regions. These laws were first proposed to allow the urbanisation or development
of rural areas to progress, but were applied too loosely and drafted too widely, allowing
abuses by developers and unfettered urbanisation in an unsustainable way.
Lack of information or due diligence: This can arise from uncertainty as to
which tier of administration to consult for permits or certificates; for example in
Spain there are certain documents which must be obtained from the municipal
government and others from the Regional government. Public information may
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European Property Wrongs