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Business Over Tapas

  

miércoles 22 de octubre de 2014, 11:21h

A digest of this week's Spanish financial, political and social news aimed primarily at Foreign Property Owners:  with Lenox Napier and Andrew Brociner.For subscriptions and other information about this site, go to http://businessovertapas.blogspot.com

email: businessovertapas@gmail.com - 20 January 2013 Nº 002

 

Editorial:

Much is made of 'urban corruption'. Building houses where there should only be pleasant orchards or grazing land, building them in flood plains, building without permits, building them with permits (but the wrong ones), building houses whimsically described by the Junta de Andalucía as 'alegal' (a word which doesn't exist in the dictionary, but is meant to mean somewhere halfway between 'ilegal' and 'legal'). There are two strings to all of this – either the protection at all costs of our countryside and our coast; or the chance to create jobs, bring in huge amounts of money from outside and save the slow but inevitable death of many small interior villages. In American terms, we can have Yellowstone Park, or we can have Southern Florida. Of course, there's a third way – where giant and politically approved urbanisations are mooted or built, just to make some huge fortunes along the way. Now that's urban corruption.

Housing:

The 'crisis del ladrillo', the housing glut, could easily be repaired, according to an editorial in El Mundo, simply by attending more international property fairs. A helpful list is given, including fairs at Leipzig (InmobilienMesse), Holland's SHI, Saint Petersburg's International Property Show, Dubai's City Space, the Mipin in Nice, London's Place in the Sun, Milan's Expo Italia Real Estate 2013 and China's Beijing Overseas Property & Investment Show. After all, says the article, Spain had more visitors last year, at 58 million tourists, than ever. The inference being that some of them must harbour plans to buy a home here.

http://www.elmundo.es/elmundo/2013/01/11/suvivienda/1357896114.html

Real estate agencies are reporting that business has shrunk by 75% since 2006 and around 2,000 agencies across Spain have closed over the past six years. Sales by business consultants and real estate agencies again experienced a 'significant' contraction in 2012, reaching around 1,100 million euros, 11% less than in the previous year. This figure represents a quarter of more than 4,000 million reached six years earlier, according to a report prepared by the consulting firm DBK. The unfavourable economic situation, the growth of unemployment and the lack of mortgage financing has resulted, according to the study, in a sensitive decrease of the number and the price of housing transactions. (Europa Press)

(Together with uncertainty from overseas buyers, rampant corruption, poor planning, a powerful ecology lobby and other ills...)

Spain is, according to data offered by The Economist, the first world country where the prices of houses have dropped the most, ahead of the Netherlands (- 6.8%), Ireland (-5.7%), Italy (- 4%) and Japan (-2%), accumulating a drop of 24 per cent since late 2007. Worse still, houses depreciated in 2012 by 11.3%, more than any other year. The British magazine says that Spain is 'in another League', compared with its neighbour France, for example, also showing symptoms of real estate crisis and a rise in unemployment to 10%.

More than 8% of the municipalities of Spain (676 out of a total of 8,116) were involved in corruption cases to do with urban development in the period 2006-2010, the era of expansion of the housing bubble and of savage urbanism. Valencia, with 94 affected municipalities (which represents 17.3% of all cases nationally) is one of the four communities that doubles the country average, along with Galicia, Andalucía and Cantabria. Five other regions managed even higher levels of urban corruption: Madrid and Asturias, which tripled the average, Canarias and Baleares, which quadruple it and Murcia, which multiplies the Spanish average by a heady seven times. The figures come from a new study called Aproximación a una geografía de la corrupción urbanística en España written by three professors from the University of La Laguna who note that fully 26.3 million people (56% of the Spanish population) live in municipalities guilty in one way or another of urban corruption. http://ccaa.elpais.com/ccaa/2013/01/15/valencia/1358281581_797548.html

Russians now account for 9% of the property market on the Costa del Sol, ahead of the Germans on 7%, but still a long way behind the British on 35%, according to data (from the Association of Developers and Constructors of Málaga province) reported in the Spanish press.

“Russians are very elitist clients, and thanks to them, as well as the British and the Germans, you could say we are surviving, although the expression isn’t totally accurate,” said José Prado, President of the association. Russians are also reported to be big buyers from the banks, who now own 80% of the 10,000 newly built homes in the area (98% of which is now for sale key-in-hand), and half of all properties currently on the market. Furthermore, Russians are making their presence felt in other popular areas like the Costa Blanca, with sales to Russians in Alicante province up by 34% in the first quarter of last year, according to data from local notaries.

If the Spanish Government goes ahead with plans to give residency permits to non-Europeans who spend more than €160,000 on a house in Spain, the number of Russians investing in Spanish property could surge.

Meanwhile, Spanish demand on the Costa del Sol is now “very weak” says Prado. (From The Olive Press)

According to the Russian Embassy, between 60,000 and 65,000 Russians live in Spain. These are official figures. However, unofficial estimates are up to 600,000 Russian citizens, i.e., ten times more. Unfortunately, many Russian citizens who live here do so irregularly, so they are forced to work in the underground economy, as both the UGT and diplomatic sources have admitted.

They are the other side of the coin of Russian citizens who settle in Spain. Those who do not go into stereotyped reports in the Spanish media, in which only the great mansions and expensive whims of the new Russians are displayed. http://inmigrantesenespana.16mb.com/

A bitter comment on the scandal of Helen and Len Prior (and many thousands of other home-owners, retired and living in miserable conditions, thanks to political intervention):

'As a country, Spain is already dead. Even if the housing problem is sorted for the better, their reputation is shot. There won’t be any phoenix from these ashes no matter what the politicians and estate agents would try to make you believe. They are too used to lying and corruption to be able to change.

Most of the Spanish I talk to, now understand that when the last of the Brits leave or, in 15 years time, just plain die off, the last of the posh Spanish owned Mercedes (still on HP) and 4x4s will be swapped for the good old reliable and cheaper to maintain “burro”. The villages are ghost towns – the younger population already emigrated or moved to the larger cities in search of work. Over 50% of the village where I live that can work are unemployed and already living without benefit aid from the state (their version of the dole is only paid for a few months). Those that are working, many of whom used to pay into the social services system, now for the first time in their lives have switched to the black economy to save on tax and keep their jobs with their employers who also can’t afford to pay into the system'. (The Olive Press)

General News:

'I want to spend 1,500 million euros in promoting Madrid for the 2020 Olympic Games... and privatise Public Health in Madrid to save 200 million euros'. So says the button on Facebook with a photograph of the Mayor of Madrid, Ana Botella. Meanwhile, as citizens get all fired up once again, the Government, in answer to a written question from the IU, states that there were 36,000 public protests and organised strikes across the nation (excepting the Basque Country, whose government refuses to disclose its figures) in the first twelve months of the Rajoy administration. Andalucía led the way with 7,141 protests. The City of Madrid recorded 2,846 during the period, getting on for ten a day.

One of the protests, held this past Sunday, comes from doctors, nurses and unions in opposition to the six soon-to-be-privatised Madrid hospitals (and twenty seven medical centres) signed into law last December. Under the banner of 'Our Health is Not for Sale', the marea blanca, 'the white tide', will include a hospital strike across the city sometime later this month.

FITUR, the World's second-largest international tourism fair - an opportunity to promote one's region, town or business - will be held in Madrid from January 30th to February 3rd (open on the final two days to the General Public). The 'crisis' will no doubt be biting tourist budgets this year, despite the industry's relative health. Andalucía, which banks heavily on the event, will probably only be spending about 1.6 million euros (contrast 2007 when the Region stumped up 3.4 million) on its promotion.

While we wonder how they arrive at these figures, foreign tourism to Spain was up in 2012 by a million visitors to 57.9 million, according to the Minister for Industry, Energy and Tourism José Manuel Soria. Figures are on track to be even higher this year, he says. Congratulations. Does this include all who came into Spain by road, those who didn't stay in hotels, those who crossed the frontier every day, cruise-ship passengers, those who live here (and never left) and those who switched planes at Barajas?

A court resolution which obliges the computer group Dell to pay more taxes in Spain has unleashed the fear of an offensive by the tax authority against other technology multinationals that pay minimal taxes in this country, despite making multibillion-dollar sales to Spanish clients. The opinion delivered by the Economic Central Court ('Teac') in Madrid, says that companies that trade in Spain must pay the appropriate taxes here, even though they bill themselves from sister companies or web sites domiciled in countries of low taxation such as Ireland. Dell has appealed the decision. This ruling is a slap in the face for the corporate lawyers and accountants who coordinate the fiscal strategy in Europe of other American firms like Amazon, Apple, eBay, Facebook, Google and Microsoft. http://www.expansion.com/2013/01/12/empresas/digitech/1358022539.html

The AVE high-speed train now connects Madrid, via Barcelona and the frontier town of Figueras, to Paris. Later this year, another section, from Albacete to Alicante, will link up Valencia with Madrid. The cost? Ruinous. The political benefits? Considerable. There are another 2,300kms of AVE in project although demand for this expensive mode of travel is, by comparison with Germany, France and above all Japan, slight.

The Jet Airliner Crash Data Evaluation Centre http://www.jacdec.de/ has published details of the safest airlines to fly (based on evaluation over and up to the past thirty years). Some figures: Easyjet is ranked 17, Ryanair 32 and Iberia at 49. All perfectly safe (Iberia: Only the Plane Gets More Attention than You). In other news, Iberia pilots have recently offered to take a 10% drop in salary, plus a wage freeze for the next two years, in exchange for certain agreements with the company. http://www.abc.es/economia/20130114/rc-pilotos-iberia-ofrecen-recortar-201301141856.html

Tesco's have removed frozen hamburgers from their shelves in the UK and Ireland after DNA samples found horse-meat and pork mixed into some of the beef patties. The meat appears to have come from Spain. Iceland, Lidl, Aldi and Dunnes have also taken the suspect meat from their freezers. The meat, needless to say, is not harmful to eat. http://sociedad.elpais.com/sociedad/2013/01/16/actualidad/1358340257_956447.html

Politics:

96% of Spaniards consider that political corruption is high and that the parties protect and aid their corrupt members, according to a survey in El País released this past weekend.

A new political party has been launched in Spain. Called Partido X, it's certainly different from the existing ones in that they don't appear to have any visible spokespeople, any candidates. The party, also known as Partido del Futuro, wants to change the way politics is managed, following on perhaps from the radical Democracia Ya and Anonymous groups, by insisting on government transparency and the end to corruption. The group's philosophy (according to Wikipedia) is a government by referendum, public Internet-driven participation and so on. Their slogan: 'Democracy, full stop'.

German aristocrat Corinna Sayn-Wittgenstein has been named as a participant in the ongoing case of the son-in-law of the King of Spain, Iñaki Urdangarin. Corinna, sometimes linked romantically to the King of Spain, is officially merely a 'very old friend' of his. Indeed, German tabloids note that she has accompanied the king on dozens of official and private trips over the years (the Spanish press usually tactfully walk around this subject).

Iñaki, a beach volleyball champion who married the King’s daughter, is on trial for allegedly channelling millions of euros in public money from the Balearic Isles and Valencia into his own pockets via false invoices, signed off by crooked politicians, using his royal connections (From www.davidjackson.info).

Catalonia: The White House has a policy of examining any popular petition to its web-page 'We The People'. President Obama has indeed just spoken against calls for secession from the USA for Texas and several other States after the subject came up on the site. To admit to presidential examination, the rule calls for 25,000 signatures in under 28 days. Staying on the subject of secession, a call for independence for Catalonia has somehow found its way onto the US web-page. By last Sunday, it had over 32,000 signatures. Mr President?

The Spanish Economy

By Andrew Brociner

Now that we have rung in the new year, it would be nice, at this point, to be able to say there is light at the end of the tunnel. After all, things being cyclical, it is only a matter of time before the Spanish economy will be healthy again. Why listen to the doom-sayers when we can ride it out over a few tapas?

Let’s take a look at some of the figures before deciding if this laissez-faire approach is appropriate.

Not a pretty picture. A recession can be defined in different ways, but a generally accepted one is negative growth for two consecutive quarters. Spain’s 2012 third quarter GDP was – 0.3% and represented the fifth consecutive quarter of negative growth. But there is more: the Spanish economy is forecast to fall by a further 1,5% over 2013. Not much to celebrate ringing out 2012, but neither will there be at the end of 2013.

Underlying this lack of growth are certain variables which are not likely to improve in the foreseeable future. Let’s look in turn at the components of growth: consumption, government spending, investment and net exports. Consumption is vital as it represents the major component of growth. But, as there is massive unemployment in Spain, people are without work and do not have anything to spend. Another important factor in Spain is the housing market. In the days of the housing boom, rising house prices led to greater spending via a wealth effect. Today, the opposite is true. House prices have fallen for five consecutive years and have not bottomed out yet. And the factors which would bring about a stabilization of prices are absent: there is still a large glut of unsold property on the market; people are leaving Spain; and there is no easy credit available from banks as before. Moreover, the austerity measures adopted by the Spanish government have eliminated any chance of consumption improving any time soon. And this, of course, leads to the next component of GDP growth: government spending, which, I think, speaks for itself. Normally, in times of recession, government spending can compensate for the lack of input from other sectors and provide an impetus for growth; combined with this, a decrease in taxes can stimulate spending. During this recession, however, the government has reduced spending and raised taxes, so the opposite is occurring. There is, therefore, not much hope of any stimulus to consumption coming from this quarter. Another component of growth is investment and here is the graph:

As we can see, investment has fallen greatly and is still doing so. It therefore cannot be counted on for any contribution to growth. The only remaining component, net exports, is positive, but too little so to make any impact on GDP and, by itself, a glimmer in the dark without a turn-around in other relevant variables. Moreover, as 70% of Spanish exports go to EU countries, it will not be until Europe becomes healthier before any impact is made in this sector. The wider picture of the Spanish crisis is a little more complex and in future articles, I will be addressing its various aspects. The picture that emerges, however, is dismal and the outlook bleak.

There are measures that can be taken to redress this situation, but Spain’s political leaders are unwilling to act, mainly to preserve their interests. For instance, there are measures which can be adopted to reduce unemployment, such as greater market flexibility and more competitiveness. This would also prevent people from leaving and lead to a greater demand for houses thereby raising the price. There is also a case for greater political union in the EU, along the lines of the US, a topic of further discussion. And there is the question of a bailout: Spain needs one, and here too, there is only foot dragging and stalling for precious time.

Spain at the moment is like a runaway train with the conductor refusing to drive. So, now, what do we make of the laissez-faire approach? Yes, perhaps in the long run, things will go back to normal, but how long that will take is anyone’s guess. And in the meantime the number of victims is growing. As Keynes once famously said, in the long run, we are all dead.

Press Cuttings:

Ayamonte and Vila Real are now a Eurocity: (El País)

The Río Guadiana, which separates the South of Spain and Portugal, should not be a barrier to cooperation between its peoples but a bridge for development. So say the towns of Ayamonte (Huelva) and Vila Real Do Santo Antonio (Portugal), located on either bank of the mouth of the river. Both municipalities signed a protocol last week to become a 'Eurocity': a common space which will join them shared programs and access to European funding.

This is the first example of this type in the south of the Iberian Peninsula, following another that has worked since 2007 which put together the towns of Chaves, in northern Portugal, and Verin, in the south of Galicia. The Mayor of Ayamonte, Antonio Rodríguez Castillo (PSOE), stresses that the agreement is simply a formalisation of the collaboration that has developed between both peoples over the past 20 years. 'We have maintained an area of collaboration within the framework of European projects and, with this initiative, what we do is to put the whole thing into a proper framework'. The Mayor of Vila Real Do Santo Antonio, Luis Filipe Soromenho Gomes, shares this view: 'people want to remove administrative barriers and promote common local development policies'.

One of the goals of a 'Eurocity' is that municipalities share services, facilities and infrastructures - and that its inhabitants have access to them on equal terms. Between the two towns there are some 40,000 citizens. 'It is the maximum expression of European citizenship; a someone from Vila Real or from Ayamonte will now have equal rights in health and services in either municipality', explains Rodríguez Castillo.

Essays:

TOWN HALLS USE AN ERRONEOUS FORMULA IN THE CALCULATION OF THE MUNICIPAL CAPITAL GAINS TAX AND COULD BE OBLIGED TO RETURN THE EXCESS CHARGED. (Miguel Just Calvo, Economist)

Councils say they apply the Ley de Haciendas Locales when they charge this tax, but they apply it wrong since they use a mathematical formula that does not tax capital gains obtained at the time of the sale, as set out in the law, but instead calculates a future surplus value which is neither real nor achievable, nor indeed legal.

The Plusvalía, the so-called tax on the increase of the value of the land of urban nature, applies on the sale of a property (such as housing, parking space, a local, etc.), or on receipt of an inheritance or a donation.

This tax should tax the increase in value of the property over the last twenty years, at most. However, the minutae of the law on local taxes encourages the town halls to in fact tax the increase in value that the property might expect in the twenty years following the financial transaction, as pointed out recently by Antonio Escribano, who lives in Cuenca, who has recently won the point at the High Court of Justice of Castilla-La-Mancha, in a final judgment. This difference represents a unjustified cost to the taxpayer of around 40% on what he must pay the local administration. For an appartment whose value in 2012 is 100,000 euros, has been owned for 20 years and is sold in 2012, the average savings is around 6,000 euros.

In Sr. Escribano's case, the Town Hall of Cuenca was instructed to return 18,000 euros. This setback for municipal coffers can be extended to other municipalities, which calculate this tax figure in the same way.

Around 1,600 million euros will have been collected in excess by councils across the country and that amount, coupled with interest and the appropriate legal costs, would have to return these municipalities together with the corresponding legal costs mean that we could be talking about a total liability of 2,000 million euros.

Which leaves us with the questions: will justice be applied, will the authorities help in protecting the general public interest or will capital gains tax rise to compensate for the mathematical calculations?

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