Sun, Sea and Risk – Overseas Property and Pension Funds

by Joe Lopez from The Rights Group in Spain

Spain and the Costa del Sol in particular, has been a favourite destination for legitimate and some not so legitimate UK nationals for many years. The last five years have seen a property explosion on the Costa del Sol and Costa Blanca with new construction projects appearing just about everywhere, leading to ever increasing market prices which in turn have led to attractive investment opportunities for speculative off plan buyers as well as the ever desirable holiday home. This led last year to an estimated 50% of properties sold on the Costa del Sol being sold to UK nationals alone.

The change in legislation allowing overseas property to be incorporated into pension schemes brings with it great opportunity for individuals to really boost their pension fund for their retirement years. This fact has clearly not gone unnoticed by the financial advisors who have already been recommending this course of action for their clients.But one must remember that with great opportunity comes risk and who at the end of the day will be the bearer of this risk and indeed who will be making the final decision as to whether a property should be included in the pension fund but the Pensioneer Trustee.

Risk

When deciding whether to allow a UK property into a pension fund, the Trustee will look to the pension holder and professional advisors to confirm the basics of ownership, valuation, encumbrance etc., however when considering property abroad, can the same measures be taken? Are they sufficient given the different laws and the environment of a foreign country?

In Marbella alone, due to some questionable dealings by the ex-local Mayor and Ayuntamiento – the Town council – over 30,000 homes built in the last five years, have been identified as having contravened planning laws, be it built too large, or at too high a density or on green protected land, whilst a further 10,000 do not have planning permission at all!

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This is a major issue, as the future of these homes remains uncertain. Current proposals, as yet unapproved, are that 80 – 85% of these homes will be given retrospective planning consent subject to conditions – which may well include penalising the developer or owner by way of fines – although the precise conditions are yet unknown. The fate of the remaining 15-20% will be decided by the courts and are at risk of demolition.

In addition, the Police have recently successfully broken a major money-laundering ring, which has identified a number of property developments as having been used to “clean” the funds. As a result the Police have placed orders on these developments thereby effectively blocking their purchase or sale – and therefore value.

The UK media and press has devoted much time in reporting the compulsory purchasing of property on the Costa Blanca area leaving residents both homeless and in some cases penniless as they have been purchased at below their market price.

The fear of large, supposedly respected developers like Aifos who have received such scathing press in the Sunday Times only a few weeks ago goes to the roots of confidence and security in this property market.

Then there is the question of valuation. The Spanish property market has seen exceptional growth over these past years mainly fuelled by Northern European buyers, all anxious to take advantage of off plan developments and price rises of 30% per annum. Those heady days are gone as the market, which has become the most expensive in Spain, is definitely showing signs of stabilising.

Yet many of those same off plan buyers are now having to purchase the completed property and finding values and the market not as lucrative as initially anticipated.

It would be unfair to think of Spain as a land of risk and danger because in the greater scheme these incidents are in the minority and this is really a beautiful place, but at this time and no doubt for some time to come the basics of actual ownership, encumbrance, valuation and even existence are clearly not so easy to ascertain.


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