Law 57/68 was enacted to protect off plan buyers of property in Spain against the risk of the developer failing to deliver the property according to the contract.
The law is very short and very precise. It distributes responsibility not only to the developer themselves but to their bank.
Any developer wishing to sell off plan, required their client’s deposits to be safeguarded by a bank guarantee or specialised insurance company issued in the buyer’s name.
A significant number of Spanish Property Developers expanded their business to Morocco in the late nineties under the umbrella of that country’s second property market push that was sponsored by their government.
The marketing of off plan properties in Morocco was directed from Spain itself and conducted by the mainframe Spanish arm of the group. This opens a possible application of 57/68 as a viability.
We have obtained all the legal documentation to prove that there is a link between the two companies. Something of an exclusive.
Other legal firms have had terrible difficult difficulties in obtaining these documents and had to forego the possibility of applying this law.
The proposed procedure has two gradients:
A general precedent ruling proving the existence of the link between the Spanish and Moroccan Operations (Matrix Case)
Use that precedent to submit individual cases in a second stage.
All buyers are invited to participate in contributing towards the cost of this master case whether they are NHI clients or not.
Upon a successful ruling (will take around a year) the cost of the individual personalised cases will be reduced considerably.
We feel that the final hearing will be in under two years.
IMPORTANT: This is a totally separate case to the one you may be involved in the Kingdom of Morocco.
You can see that Law 57/68 was an attempt to stop the unscrupulous developers of the day from doing what they wished with other people’s money and the “hound” who were supposed to ensure this did not happen, were the banks themselves. So, a duty of care was established, banks had to ensure that constructors issued their clients with insurance policies or bank guarantees and supervise that (bank) finance was applied correctly. There is yet another angle that this firm has discovered and that’s not widely known. The law can be applied even if you haven’t got a bank guarantee. We need to prove that funds stayed in Spain, whether that is, funds went from client/lawyer to the developer’s Spanish account. This coupled with a positive ruling in the matrix case (link between the Spanish/Moroccan companies) will compose an excellent case.
Remember that the law requires the developer to open a separate account for day to day transactions. I simply cannot see a bank supervising the comings and goings of funds from an account prior to 2008. The bank was, simply caught when necessity came during the crisis.
For many years developers based in Spain, both homegrown and foreign, invested heavily in the Kingdom of Morocco as a result of this country’s drive to promote a second home market, all under the umbrella of Plan Azur 2010, an ambitious government sponsored infrastructures programme to facilitate this.
At first, some of these developers financed themselves in the traditional way, that with construction and project finance from a bank back in Spain, even if the collateral for the loans were in a different country.
The major developers had, in those boom years, no difficulties in obtaining funding, basically because they had other assets in Spain to back it up.
However, the problem arose with the smaller and foreign developers operating from Spain. These had little or, no assets making the granting of loans difficult, especially for construction in a different land.
To build in Morocco, these developers had to do it through a Moroccan subsidiary, an S.A.R.L, but in many cases, these companies were merely a vehicle for their day to day with the bulk of the activities were in Spain, and as we shall see later, most of their banking, which has become key in this Moroccan angle.
The mechanics to receive client’s deposits for off plan property in Morocco was simple, most simply came to Spain. This, despite that Morocco’s exchange control regulations quite clearly says that all funds to invest in property in their country had to be channelled through it. If these procedures are not followed, in the eventual case of a future sale of the property, the vendor would find it impossible to repatriate funds to their countries of origin.
Unfortunately, there is NO proof in most cases, and with most developers of this type, that funds were received in Morocco. In fact, in my opinion, the little funds that managed to get there was just enough to pay salaries, taxes and suppliers, and not necessarily to officially declare client’s investments.
Another curious angle is how foreign buyers used their Spanish based lawyers to channel payments to the developer. This would have been fine if the lawyer had sent the transfer to Morocco, but somehow, these transfer almost all ended up in the developer’s account in… Spain. Here we have a doubled edged scenario of a well-intentioned lawyer following the developer’s disposal instructions of funds when they should have known that this was not the right procedure.
To be continued
Getting a mortgage in Morocco has never been easy for foreigners whether they were residents or not. As in many other areas the cultural gap always seems to creep up. Must be this innate Moroccan ability to charm birds off tress but even in the best of times (2005-2007) the hour of truth always imposed itself and all the previous promises from banks, developers and agents alike went from the original ne pas de problèmes to a straight non. Many investors thought that when they got their letters of intent from their bank that was it but alas this is another world and paper doesn’t necessarily hold water (o promises) here. Ask the many distressed developers who attained fantastic promises of finance in writing with the honest intention of perhaps also making it extensive to their clients and see, just see how it all came to nothing.
For this modest writer there has never been a credit crunch for private individuals in Morocco simply because there has never been credit! At least my long and personal experience says so. Put it this way, banks or any other institution for that matter are not really there to help (and then help themselves in a macroeconomic way), the whole scene works how can I say, in a more… micro way.
This has been real life for me but let’s see how Bloomberg, obviously more concerned about the really big boys, described Morocco’s so called “credit crunch”. So… if Bloomberg says so it must be true. I have to be honest I never got near these players so I couldn’t say, but have my doubts though. In an article that appeared in January 2013 but probably still applies today (September 2013). The first very surprising paragraph bluntly tells us that Morocco’s drive to emulate Dubai’s by turning itself into a playground for rich Europeans was halted due to the lack of investment in the luxury resorts as from the beginning of the global financial crisis as “cash strapped” banks (my inverted commas – I know I’m a tough nut) were hit. This is partially true, Morocco’s Plans Azurs; that is government tourist development and infrastructure plans, had that aim but making comparisons with Dubai and putting the spotlight on the banks is going a bit too far. More to do with the aforementioned financial crisis and how it affected everybody I would say.
The figures are there, the country’s tourist visits climbed to 9.3MM in 2011, very close to the projected 10MM under Plan Azur 2010 but, and here is the but… 83% of those visitors were from Europe who were specially hit by recession in their own countries immediately after that. In any case, I’m pretty sure that the bulk of the aforementioned tourists were that, tourists per se and not necessarily international investors or individual buyers. I am pretty sure that the buyers stopped coming around 2008/9.
Nonetheless, Bloomberg did confirm that homebuyers and companies grew at the lowest pace in a decade last year (2011) through to November according to Central Bank data in September (2012). But grew nonetheless which is shocking but what Bloomberg doesn’t say is who these homebuyers and companies are whether domestic or international. They add that due to this, said Central Bank allowed its supervised banks to reduce reserves to increase liquidity or money in circulation, which in itself is a contradiction in balance sheet terms.
Morocco, like Dubai (here we go again) was in the midst of a major tourist expansion when the global financial crisis stuck, causing investment to tumble, affecting property developers with banks and investors increasing their Real Estate debt. Big boy developer finance apparently surged in the two years before the market stalled in 2009 and with much of the debt maturing this year (2013) it will initiatively lead to the usual vicious circle of distressed property offloads a la southern European and bank balance sheets full of nasty bad and doubtful debts. Bloomberg innocently calls this outcome “property sales”. You bet…
So here we appear to have a certain overexposure to commercial real estate mainly tourism-related which will limit bank advances in 2013 coupled with the fact that the Moroccan market isn’t mature enough to recover all these projects which in themselves are too big and ambitious to be completed by Moroccan players. And… there is no EU to come to the rescue.
Mortgages peaked at 57% in the first 11 months of 2007 and lending to developers jumped almost six-fold in that period (I must have lived in a different planet – how scary) but according to Central Bank data and like in Dubai (uugggg) projects stalled in the midst of the great US housing slump and the subsequent ignition of the global crisis.
Here is another one: The Arab spring caused mayhem in a number of North African countries but thankfully left Morocco aside but nevertheless the country paid a certain price with economic growth slowing to 2.9% in 2012 as compared with 4.9% in 2011. In addition to this we had Morocco’s chronic decease, droughts, which caused agricultural output to drop by 8.4% in the third quarter of 2012 which obviously had an effect on the country’s trade deficit, down 11.9% in November.
Like in those economies once highly dependent in Property and Tourism such as those of southern Europe we apparently have a situation of overexposed banks in the real estate sector whose priority in to complete those projects they are already involved in and forget everything else. Unfortunately for the banks those Projects were mainly targeted to foreigners that have simply stopped investing.
The Plan Azur 2010 provided for the building of six mega-resorts together with the infrastructure around them. The crisis prompted foreign investors to look for an exit halting further development. Amongst those projects was Mediterrania-Saïdia, the only one by the Med, as the rest were planned for the shores of the Atlantic. What should really have been the playground of the jet setting rich shuttling to its 800+ berth marina from relatively nearby Marbella has become semi deserted with only 3 of its 9 luxury hotels operating and that in turn are now relegated to cater for Spaniards from the enclave of Melilla a few kilometers away on super budget weekends all in.
The Central bank also say some, for me, very puzzling things. Like for example that private sector lending increased (yes increased) by 2.8% the lowest rate since 2002 when it was 1% with loans for housing rising 6.8% for the eleven months through November again the smallest increase since 2002. The reserve ratio of banks was thus cut from 4% to 2% to counteract “liquidity shortage”. Almost needless to say, banks now have a very selective (if at all) approach to request for funding.
In its heyday mortgage rates ranged from 5.5% to 6.75% whilst developers offered finance at rates ranging from 6.21% to 7.75%. However I have met very few foreign clients that have obtained finance from banks, promises yes, finance no, and certainly none that have got it from developers.
Obviously developers as at today (2013) have totally rationalized their approach to building mostly to pay off or restructure their loans as they mature. The general bottom line is to offload their assets before they get in even more trouble.
Another thing altogether is the incentives offered by the Moroccan Government to encourage the building of low cost subsidized housing in a nation of 32MM people. FOGARIM is a state fund that guaranteed mortgages as long as 25 years for low-income workers. The loans cover as much a 100% of the purchase price applied to homes that don’t exceed 200,000 Dirham.
Spanish developer Fadesa, the original Fadesa that is, who were awarded for a song the Mediterrania-Saïdia Plan Azur project by the government in 2003 was also asked in return to contribute to the building of social housing as well as the improvement of general infrastructure and even a clinic in Saïdia town. Le Jardins de Moulouya a complex of over 22 hectares and only 1Km from the beach were thus built under this umbrella. This idea was quickly picked up by the relative higher earning Moroccan expatriate workers in Europe who saw it as an investment opportunity. The idea was good and well intentioned but like many other things it may not have achieved its aim.
Coming back to the King backed Plan Azur 2010 which came under the wing of Vision 2010 tourism strategy originally sought to more than double the number of visitor beds to 230,000 up to 2010 only achieved under half that amount when the crisis started in 2008 starving the market of takers. Needless to say the six mega resorts under the plan suffered the consequences of this scenario with about half now being built. We are now in a position where the government has to reset the Vision and make it 2020 to meet the goal.
Property owners in some parts of the kingdom including Marrakech are facing the value of their properties, many in semi deserted resorts with relative unused golf courses going down in price with villas now at 50 or even 70% of their original “happy days” price. Some homes in the centre of “can’t go wrong” Marrakech that were priced at 20,000 Dirham per square metre can now be bought for about 12,000 or even as low as 8,000 Dirham per square metre.
However, the Taghazout Plan Azur Atlantic coast project has now been restarted under the new Plan Azur 2020 with a new goal to double tourists by that year according to the government. It remains to be seen how the present signs of recovery in Europe, Morocco’s main source of visitors, will affect the revival of the Kingdom’s tourist industry since France, Spain and Italy provided the bulk of pre-crisis visitors and potential investors.
The customers have changed, there are fewer foreigners buying but this is cyclical and one would hope the trend will change, say some experts in Morocco but… Will it ever be the same again?
The bulk of this piece is taken with permission from the Bloomberg article of January 2013 with my own comments thrown in, mainly to balance up some data typically offered by foreign journalist from their Kuwait desks.
I cannot offer a firm conclusion of how things will evolve with the Moroccan tourist and real estate market because I am still not sure even that I try to get as much information as I can. To offer a firm forecast would be misleading and commentators should know better. One hope is Europe’s recovery in the next few years but I would tend to think that people have learnt their lesson by now. It will be stupid to hope for the riches of the good years but this goes for Europe too.