I recorded the latest podcast a couple of weeks ago and went through some of the questions we had been sent as voice notes. Thanks to all of you who sent voice notes in for that. One question specifically interested me as a longer blog post and that is all about why you can't buy that empty property, or rather why are there so many properties that are neither inhabited nor for sale and the answers are so many it was worth answering in longer form here. Today on the blog we are going to look at the main reasons and some of the more uncommon reasons. Some of them are very surprising.
The Biggies
It's not for sale because...
Inheritance and Family Feuds
It's a lot to do with inheritance and family feuds, and it's also to do with the cost of actually inheriting in certain cases. What happens is typically Spanish families are quite big, and the form of inheritance works here is as follows. The surviving partner gets 50% and then the children get 50% between them along with the surviving partner.
For example, if there are three children, then the surviving partner gets 50%, and then the surviving partner and the three children get 12.5% each adding up to a hundred percent. In the end the surviving partner has 62.5% and is allowed to live there until death. Now let's suppose that over the years the surviving partner falls out with one of the kids, or one of the kids falls out with their two siblings etcetera, and when they come to inherit and then sell, they inherit the 62.5%, leaving them all with about 33% in the end.
The problem is all of them have got to want to sell. And if they've fallen out, that often doesn't happen. Equally, one of them might have moved away and they're saying, well, I'm not gonna deal with this. So we'll need to get a power of attorney. And sometimes they don't even bother to do the inheritance because they think they're going to have to pay inheritance tax, which in a lot of cases they won't.
And lastly it can't be sold until the owners are the inheritors which requires a whole process of going through the inheritance, the property registry and a whole lot of time. The property might remain therefore in the dead person's name.
Saving Up
The next one is that they've got a property which they would love to do something with, but they haven't got the funds to be able to actually modernise it. They're saving towards that end. Sometimes therefore, a property is sitting there just crumbling. At the moment, the owners aren't able to get the money together in order to do anything with it or haven't got the inclination or the time or whatever. So it sits there off the market, not lived in, looking empty and looking worse every year. And it will take years. It's not a thing they decide to hold for a few months and then decide, oh, we'll sell it now. They just keep holding. And there's a reason for that...
Using Property As a Bank
Spanish people invest in property. They don't invest in shares much. They don't invest in crypto in general, although some of the younger people might, but really people in Spain when they get a bit of extra money they buy another property, and then they'll rent it out or not rent it out because when prices are rising, they just wait to get more value in that property.
Here's the thing about this and the Spanish attitude. When property prices are rising by 15-20% per year as they have been doing recently then why sell to put the funds into a bank where you may only get 2% interest, or less. Why place it into a preceived "risky" investment such as the stock market or crypto, especially when both of those are in huge speculative bubbles currently. Spanish people like to have an asset they can see and feel rather than numbers on a spreadsheet. Their attitude is often that the property is better empty as it doesn't suffer wear and tear from usage by a tenant and the value will therefore go up by even more.
And speaking of banks...
It Belongs to a Bank
There are hundreds of thousands of properties in Spain that belong to banks and hedge funds that have bought packs of properties from banks. They largely lie empty. Why?
Firstly banks often don't know the reality of the properties they hold as those properties have passed through many hands over the years after the 2008 financial crisis. Many banks disappeared, the properties were placed into the "Bad Bank" (Sareb) and held there before being released onto the market slowly after access, clarity and state of the asset have been established. However, this is a long long process and banks are not estate agents.
At the same time banks do not want to flood the market with properties so as not to depress prices and reduce their potential earnings so they release about 15% of their stock onto the market each year. The good stuff is snapped up before it comes onto the market by the hedge funds (given preferences for buying packets of properties) and insiders in the banks. Decent stuff sometimes comes onto the market but mostly rubbish comes from the banks and they know it so they hold it until it doesn't look as rubbish.
Restrictions on the Property
Some property doesn't come onto the market because there are restrictions on it. It may have been classified as commercial in the past for example and getting a change of use to residential is difficult. It may have been industrial when getting a change of use is even more restrictive. It may have restrictions in what can be built on the land and demolition and rebuilding just isn't worth it for any developer or owner so it falls even further into disrepair. It may be a huge apartment but cannot be divided into various units so again developers aren't interested in it.
Restrictions within the market for particular properties account for a lot of them not being placed up for sale.
Mortgage and Debt
The value of the mortgage and associated debts on the property may be higher than the market value so the owner hasn't got the option of selling. They may want to sell but they cannot because except in very rare cases there is no such thing as a short sale in Spain. But why might the mortgage and debts be higher than the value of the property?
This all goes back to prior to the 2008 financial crisis and was one of the causes of the banking crisis in Spain. Mortgages were given by banks at up to 120-130% of the value of the property. Prices then dropped through the floor and the high mortgage remained, most of which is made up of interest payments. Even when the owners have continued to pay the mortgage over the years the value of the property may not have got back to 2008 levels, especially in less demanded areas. Equally the owner may have come to an agreement with the banks in that period to just pay interest and maintain the principal on the mortgage meaning the amount owed has not dropped. The owner might be ok paying the mortgage at the low interest rates currently in place but the mortgage remains higher than the house value so they cannot sell.
Equally any other debts that the owner may have got over the years might well be placed on the property too making the debt value even higher.
Sometimes though the banks have repossessed these properties from the owners due to non payment and the repossession process puts more debt on the property. Sounds mad but it does. The bank then wants to sell at the full value of the debt and nobody in their right mind buys a property from the bank at inflated debt value so the banks hold until the market gets to what they consider to be the inflated value they have put on the property.
Lack of Profit
Some owners won't sell because it's not worth it to them. Usually because there isn't enough profit in it for them to sell. This is usually because they wouldn't have enough money to buy another place.
For example if somebody buys a property at 200k they couldn't sell at 220k without losing money because of the costs of purchase. Even 250k might not be enough to convince somebody to sell because they have paid out 15% on purchase between taxes, notary, agency and registry making a total of 230k and they also have costs on sale including potential capital gains liability so they think for a few thousand profit why sell?
Mortgage Interest Rates
Some people have such a low mortgage on a place that they will keep hold for as long as possible and not place it on the market. They will do everything they can to keep the property because they might be paying as little as 1.5% fixed interest on their mortgage. Moving to another place might double their mortgage repayments because a new mortgage may be 3% for example on a higher priced property so they keep hold. Some of these owners will keep hold and rent out as the rental will more than cover the mortgage repayments.
Optimism
"It's worth 500k now so it'll be worth 600k next year!" Some people will never sell in a rising market because they believe the value will keep rising and they will then be rich, at least on paper. What they also do at the same time is they refuse to sell in a falling market too because "It was worth 600k last year so that's what I want for it!". There's no explaining human thought processes at times.
Who Is The Owner?
This is more common in villages and towns but finding out who the owner is on older properties can be nigh on impossible. Lots of times inheritances have been done by word of mouth as notarised inheritances cost money so properties have passed onto people who wouldn't be the legal owner through Spain's strict inheritance criteria and the real owner might not even be aware that they own a plot or property as the value was so little back in the day that everything wasn't done as it should have been.
Buying a property without the correct paperwork is a potential world of pain and equally, if the real owner doesn't know they have a property then it will never appear on sale.
Land/Property Banking
More on a corporate level than an individual level but many times funds, businesses or even individuals bank land and property with no intention of developing or selling. In the case of businesses it's often to have assets on the balance sheet and for individuals it may be to have something to pass onto their heirs further down the line or in the case of richer families it's for the Family Office to develop or hold their assets.
Paperwork
Sometimes nobody knows where the paperwork is and it's not clear in whose interests it would be to, firstly, find the paperwork and, secondly, clear it up for sale purposes. Again this is only done when it is very clear that there is a large amount of money involved whether that means profit or windfall. When the amounts involved are small it almost never gets sorted.
Liens and Encumbrances
There may be a number of liens and encumbrances on a property. Tax debts, court judgements, disputes over plot sizes and shapes, pending litigation from family members or others... This is not usual but it can make a property not come onto the market even if the owners want to sell. Everything needs to be clear before an owner can sell and your lawyer, because you will be using a lawyer won't you, will advise you not to buy if there are liens that could affect you after buying. Remember these are often not financial reasons like debt but they should be taken into consideration before placing any money down on a property.
Two more biggies...
Holiday Homes
A biggie. Because of course, someone's holiday home by definition is only occupied when they are on holiday, unless they rent it out when not there. The vast, vast majority of empty homes on the coastal strip are empty because the owners are living in their primary residence. The property may be used at weekends, during national holidays or all summer but it may be empty for the majority of the year.
Rural Depopulation
Another biggie. People move away from the land towards work in the bigger cities and conurbations. Young people move away to go to University and may never come back. The properties remain in the family name and as there is no demand for rentals in areas where there is no work so they remain empty. Even if they are put up for sale they get very little interest because why would people move there? The place might be lovely but if there are no facilities, a falling population and no work it's unlikely that anyone will move there.
Conclusion
I'm sure there are other reasons on a smaller scale meaning a property never gets to see the market but these are the major ones that mean there are an estimated 4 million homes lying empty in Spain, around 14% of housing stock. And of those 38% have been empty for over five years according to Fotocasa one of the major property portals!
However, that doesn't mean that you see swathes of empty properties in the big cities. Take a look below.
The image above shows the numbers of empty homes in Spain. There are areas with up to 40% of properties lying empty, those in yellow, and it's largely to do with rural depopulation towards cities* but even in places like Madrid and Barcelona there are between 6.3-9.3% of properties lying empty, 97,000 in Madrid and 76,000 in Barcelona. In Valencia the figure stands at 8.8% of properties empty.
*Laza in Orense in Galicia leads the way here with 75% of properties lying empty.
The above chart shows that the areas with most empty houses are those with rural depopulation and tourist areas on the coast. And below it shows that the most empty houses are in smaller towns and villages. An average of 33% in villages under 1000 inhabitants for example.
*Screenshots taken from El Diario newspaper. Correct in 2023. For non subscribers there is a readable version here.
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One Last Thing
I thought you might like this map of Spanish roads found on Reddit. There's some seriously empty parts of Spain.
Compare with the map below of Spain seen from space at nighttime. The importance of the coastal strip to Spain is emphasized.
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