Sunday, 6 April 2008

Real Estate Crisis Affecting Public Funds

The Catalan real estate industry goes through difficult times. Some people blame it on high interest rates, which make it more expensive for people to pay their mortgages, while others think that an expected future fall of housing prices is the main cause. The end result is the same – demand for houses and apartments is declining.

In Vilanova, the consequences can already be seen in the high profile development of l’Eixample de Mar - the huge area which historically used to house a Pirelli factory. The pace of the construction works has now been adjusted to the lower number of interested buyers. At another housing estate, Residencial Les Llunes, the 100 appartments of the first phase were sold out fast last year, but out of the 125 available in phase two, only 50% have been sold so far, and it is estimated that the rest sell will sell only one per month. The figures are disappointing, but so far Vilanova seems to be spared dramatic price drops. People who buy real estate here tend to use it as their primary residence, and not for speculation or as weekend apartments.

It is obvious that a lower need of construction workers will result in higher expenses for unemployment benefits. However, the crisis will affect also the income side of public funds, since throughout Catalonia and the rest of Spain, municipal governments have started to rely on construction related taxes and fees.

In Vilanova in 2007, the loss of income was 1,2 million Euros compared to the original budget. While licences for new buildings (ranging from single family homes to industrial facilities) peaked at 150 in 2006, it fell to 86 in 2007. To further underline the negative trend, of the licences requested last year, 61 came in during the first six months, and only 25 during the second half of the year.

Again, Vilanova seems to cope relatively well with the new situation, at least according to local mayor Joan Ignasi Elena (PSC). He underlines that the municipality closed 2007 with a surplus and that estimates on what the government will bring in from the construction industry in 2008 have already been written down. According to him, the town’s finances are “in order and on a sound footing” (“en ordre i sanejades”). Local opposition CiU are much less confident. They call for an independent audit to be made since they expect that the government is making use of funds originally destined for investments to pay for current expenses. For the smooth running of the town administration, let us hope that the mayor is right. The real estate crisis is far from over.

This entry is largely based on information presented in the latest issue of the Diari de Vilanova.

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