The law is there to protect off-plan property buyers and their deposits.
It’s very short and precise, in black and white
If a developer wanted to sell off-plan they had to obey certain rules
It’s applicable to Morocco when there is a Spanish developer involved.
Developers should have asked their clients to transfer the money to Morocco and NOT to Spain.
They breached the law.
How can we prove it? – Didn’t I sign my contract with developer x?
We must prove to the court that the Maroc side was the Spanish one masquerading as a “Moroccan” developer.
“A verdict for all verdicts” – What’s this? – We call it a “Matrix” – A sentence confirming all the “masquerading” that’s all.
How can you do this? – We’ve got the documents… Took long enough!
What happens if we win? – We create a precedent and THEN we’ll put your individual case through.
Who pays you at the end of the day? – The “unfortunate” bank – What happened in reality is that developers unconsciously passed the “buck” to their bankers, pity for them, under the law they (the bank) should have blown the whistle and insisted the money went to Morocco. Did the money go to Morocco? – We don’t know but it doesn’t look like it, otherwise…
Can I join that “matrix” case that you’re talking about? – If your money went to Spain and not to Morocco, it’s up to you. You don’t have to.
Don’t forget… There are TWO cases, one that will give us very good guarantees if we win and there is your individual case.
Why don’t I just wait until you win that case and then jump in? – Because it will be more expensive then.
And the Moroccan case we are all embarked on?
This goes on, business as usual. You will still get regular updates as up to now. This is SEPARATE AND PARALLEL.
Again… You don’t have to.
Second – Receiving the sums advanced by purchasers through a Bank or Savings Bank, which must be deposited in a Special Account, with separation from any other funds belonging to the promoter, which may only contain funds deposited for the construction of dwellings. For the opening of these accounts or deposits the Banking institution or Savings bank, under its responsibility, will demand the guarantee to which the previous condition refers.
(For the law to be applicable)
Monies for off-plan house purchased MUST be credited to a Bank account (or Savings Bank). In Spain these are/were called “Cajas de Ahorros”
This account MUST be separate from that used for the day to day of the developer.
The funds deposited in the special account MUST be used to finance construction.
(The interpretation we are pushing forward which is backed by the law): The Bank MUST insist that these funds are spent on construction and only construction)
NOTES TO BACK UP OUR CASE:
Did the developer’s Spanish bankers supervise the above?
Was, the developer’s Spanish bankers aware that these funds were destined for Morocco where the only way you can register an investment from abroad is by channelling funds through their banking system.
Why did the developer in, some cases instructed, Moroccan Real Estate investors to remit funds to a bank outside the country?
Was the developer properly advised in Morocco about the nature of their investment laws?
Why did Spanish lawyers (who should have known better) transfer their clients funds to the developer’s bank in… Spain.
Did the developer know that in order that their buyers could repatriate funds in future the only way to do so is by individually declaring the investment in Morocco?
Were any funds transferred by the developer done so in bulk or under individual names? If the former took place, the developer and the client’s lawyers were jeopardising any future prospect to repatriate funds.
The case is against individual banks and NOT against the Spanish arm of the operation of the different developers involved. Under the clauses of the law, banks are obliged to reimburse ALL funds channelled through its books plus interest at 6% per annuum.
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
Law 57/68: Permits buyers of off-plan property to directly make a claim to all those banks (not developers) who take in buyers deposits as long as the property is not finished or in all those cases where the property is finished but the contract is resolved before a final occupation licence is issued by the local authorities and/or that the buyers have been required to complete (and the property is not of the contracted standard).
Interpretation of this law has been perfected by the Supreme Court and it’s systematically applied in cases where there is a bank guarantee (general or individual) in favour of the buyer or where there is no such document.
It’s a technical legal procedure that requires the participation of a specialised legal firm with a wide knowledge and experience of civil and banking procedures.
Fernando Salmerón, August 2019.
This piece of advice on the Moroccan market was very kindly written by Jorge Garcia Larios who is a property expert based in Melilla, a Spanish enclave in Morocco. It deals with the topic of developers that are experiencing financial difficulties but still maintain assets in the Kingdom of Morocco. The assets in question are usually in the form of land as most developers of unbuilt projects, at this stage, have little or no money.
One such developer is/was Property Logic Maroc S.A.R.L a subsidiary of Property Logic (Spain) based near Marbella in the Costa del Sol. The company’s flagship development, called Le Jardin de Fleur, was to be composed of Tourist Apartments and Villas over various plots of land at the Macro Resort “Mediterrania-Saïdia”
Property Logic stopped building some time ago and have ever since been seeking finance to continue the works. The result of this sequence of events has left scores of derelict shells of what were to be luxury apartments and villas full of rats and weeds. It appears to be totally beyond repair at this stage.
To give Property Logic some credit, by comparison to other developers in the region they have been reasonable at keeping up communications with their clients. Unfortunately most of these communications refer to the possibility of raising further funding to complete the project. This funding has always been ‘just around the corner’ but it has never materialised. The willingness to communicate is, however, more than has been shown by other developers in difficulty in coastal Morocco.
From 2004 to 2007, like many other areas, off plan purchases in tourist regions of Morocco experienced a huge boom. Many people came in contact with Property Logic’s high visibility marketing campaigns and it consequently attracted a lot of purchasers. The developer even persuaded some UK based Premier League footballers to invest in the resort. This obviously played very well in UK and Irish media outlets, succeeding in attracting even more buyers. Unfortunately nobody who bought has had deposits refunded, which amount to around 40% of the original property sales price.
Property Logic Payment Structure
Clients reserved their properties with a token deposit which was followed by around 20% of the total cost. Over what was to be the initial construction stage a further 20% was requested at which stage came the signing of a private contract loosely translated from French as “a promise to sell”. Under Moroccan Property Law all these contracts have now expired and, as they were written to favour the developer, they are not robust enough to offer their holders any protection in law. Essentially, the beneficiary names don’t appear officially anywhere in Morocco. There is no legal reference to them so the Moroccan authorities know nothing about them, despite their having parted with significant amounts of money and now having nothing to show for it.
What can clients do?
There are essentially two things you can do. Be passive or be active.
The First Option – Do Nothing and hope Property Logic delivers
The passive route is to wait and hope that Property Logic obtains long promised funding. This is highly unlikely but the building licence has now also expired so the developer would now need to re-apply for a new one. Property Logic also has a good deal of creditors with liens on the company assets who will need to be dealt with before any building is contemplated. To clear the creditor list Property Logic will require the ‘main levé’ from its creditors (literally translated as ‘hands up’ or ‘surrender’ from French. This is a legal document enabling the developer to clear the creditor list. It involves all creditors signing away their legal rights. No strong creditors will do this unless they are happy with the negotiated settlement. Those without rights will be left out in the shuffle, relying totally on Property Logic’s goodwill.
Another matter of concern is that it has been mooted that the company is not held in high esteem by Moroccan Authorities. It is widely considered that the Moroccan government is anxious to see the back of the company and others like them. This makes the possibility of obtaining a new build licence very slim indeed.
Second Option – Become a Creditor of Property Logic
The second and more active option open to clients is that, if they are not already official creditors they should consider very seriously becoming one. Why should a client go to the bother of doing this? As stated previously, contracts with Property Logic are now pretty much worthless. It is almost inevitable that Property Logic will eventually drop out of the equation and whoever takes over will no choice but to deal with the creditor list. Those who are not officially listed as creditors will simply be forgotten about. It’s not an ideal scenario for many clients as it involves reliving the nightmare of the investment and it is obviously going to involve extra expense.
We will deal with the process of becoming a creditor of Property Logic (or any other developer for that matter) in a later article.
Jorge Larios can be contacted at email@example.com.
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.
A few kilometres south of the Spanish enclave of Melilla is what locals call “La Mar Chica” (The little Sea) a salt water lagoon about 25 kilometres long and covering an area of 4000 hectares. It has a semicircular shape only 8 metres deep separated from the Mediterranean by a narrow sand strip of about the same length with an estuary in the middle of about 120 metres.
There are plans to develop the area around it including the sand strip culminating in 2025. It will create 7 cities with all the facilities and will no doubt rival Mediterrania-Saïdia the macro complex 80 Km to the east.
Watch this space.