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Wednesday, 29 August, 2001, 15:08 GMT 16:08 UK
Spanish housing boom fuelled by black economy
In some parts of Spain, as many as 50% of the houses are holiday homes
In some parts of Spain, as many as 50% of the houses are holiday homes
Spain has always been a desirable location for a second home.

The Costa del Sol is famous for its sun and laidback lifestyle.

In recent years, Spain has enjoyed a housing boom and anecdotal evidence suggests that more and more of these second homes are being bought by people needing to get rid of black money before the euro arrives.

Suitcases of pesetas and deutschmarks and francs are being handed over for cars, television and especially property before the euro renders these currencies obsolete in January next year.

Spanish black economy

Of the estimated 250bn worth of black money floating around the EU, about 40bn is in Spanish pockets.

About 10% of Spain's GDP is thought to be stuffed under the collective mattress.

"Oh it is a part of our lives.... I believe that the majority of the population says no bill, no taxes , no proof, so black market is spread through all the country, in every attitude of the Spaniard," Carlos Sals, editor of business magazine Capitale, said.

The way the property market works in Spain is particularly attractive to tax evaders.

In the first round of negotiations a price is settled, in the second round, buyer and seller decide how much will be paid legally - and declared to the taxman, and how much in black cash.

That said, economists say the Inland Revenue has tightened up on this kind of tax evasion in recent years.

Big-time money laundering is less likely to happen. What is more likely is that "people with a little black money in their pocket, add this to savings to buy a house," Ignacio Sin Martin, real estate economist at Spanish bank BBVA said.

House price boom

House prices have increased by about 15% in Madrid this year.

"It is difficult to disentangle how much price increases have been part of this (black economy) phenomonen and how much it is due to the fact that interest rates have dropped a lot," a London-based Spanish economist said.

BBVA's real estate economist Ignacio Sin Martin attributes the housing boom to the fact that not only are more people working but most of them also enjoy higher salaries.

In the past four years, about two million new houses have been built, about 10% of existing stock, he estimates.

Last year, Spanish builders began work on about 600,000 new houses. This year, that figure is expected to be 475,000 new houses, as the slowdown in the wider economy filters through to the housing market.

About 20% to 25% of the Spanish housing market can be attributed to the second housing market. In some areas, such as Malaga, this figure can be as high as 50%.

End of black economy?

Officially the Spanish government claims that the introduction of the euro will be a chance for them to control the black market.

Secretary of State for Europe Ramon de Miguel is even prepared to say that the euro will spell the death of the black peseta. "This will come to an end at a given moment on 1 March 2002. And this is one of the good effects of introducing the new currency that huge amounts of black money are going to be dissolved."

But lawyer Miguel Albaladejo is among those who suspects the government will turn a blind eye to black money.

"The government doesn't consider it a big problem - not a problem enough to be very active in their policies. Why , because we know that this is a very important part in the Spanish economy," he said.

See also:

30 Jul 01 | Country profiles
Country profile: Spain
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