Outsiders play a key role in the economic development of tourist areas in Spain. The socio-economic frame revolves around attracting foreigners, as is the case for Marbella in Costa del Sol, one of the most multicultural places in the country. Here the tourism industry seduces international investors, tourists and workers. Recent modifications in migration law aim to push up the income from foreign capital, mainly to keep afloat the housing market, which was seriously hit by the financial crisis. However, this economic model does involve some lights and shades.
Holiday apartments in Urbanization Alicate Playa, Marbella. Credit: Ana Escaso.
The California of Europe
Located in the Andulasian province of Málaga, Marbella is an atypical Spanish city. The sun shines 320 days a year, turning the skin of the locals to a permanent golden tan, but this town located right by Africa is different from the rest. One could say Spain, as a whole, is a mix of different cultures, traditions and landscapes. But Marbella in particular sparkles with international character.
International firms now invade this town, that was once a fishing village. Public announcements and signs are translated into English, some even into Russian. More surprisingly, in Marbella, 137 nationalities live together peacefully and 30% of its population are of international origin. This is very unusual in the traditional península Ibérica – unless you go to Marbella, the California of Europe.
Many different cultures have landed in this area for centuries, from the Romans to Muslims groups, and they all wanted to stay. Surrounded by the Sierra Blanca mountain range, including La Concha mountain and with the influence of the Mediterranean Sea, Marbella offers unique weather, and is chosen by many Danes, Germans, French, British, Italians and Dutch as their second home. These visitors are called ‘residential tourists’ and today represent the main supporters of Marbella’s economy.
The early 1990s are considered Marbella’s golden age; tourism helped the city to bloom. At that time the city was ruled by the eccentric politician Gregorio Jesús Gil y Gil, who held the position of Mayor for 11 years (1991-2002). Although made famous by corruption-related issues, he will remain in the collective Spanish memory for being the anchor of the TV show Las noches de tal y tal, via which he gave his political speech from a jacuzzi, surrounded by attractive women in bikinis. This image would prove a humanised, grotesque caricature of Spain’s political crisis that was to come years later, but also shows how Marbella was a nonstop party.
The city became trendy as a holiday destination among the international jet set in Europe. Luxury cars roared all over the place; dream yachts came to dock at Puerto Banús in Marbella, the fourth most expensive port in the world, and parties were celebrated constantly with visits from rich and famous people such as Antonio Banderas and Julio Iglesias.
Marbella began to specialise in a very exciting lifestyle that attracted tourists from all over the world. Particularly beneficial was the arrival of the Arabs. Upper class and rich Arabs, such as the Saudi royal family, became the favorite clients of the city, while investments in the tourism industry were made with petrodollars. But, when the financial crisis started in 2008 the rich were already bored of Marbella.
The housing bubble that hit Spain’s financial system had a massive impact on the coast, where thousands of houses were built and many still remain unfinished. The appalling drop in housing prices – nearly 42% since the start of the crisis – placed the building industry at the heart of Spain’s concerns, while a cloud of uncertainty and instability seemed to crash against the country. Spain definitely was no longer the attractive destination for international investors it had been in previous times. Marbella, where there was an important set of luxury residences to be taken, was not willing to give up high standards of living and started to think further about what to do.
Seeking investors in times of crisis
Spain’s Prime Minister Mariano Rajoy and his People’s Party modified migration laws by the end of 2013 to include a new ‘Entrepreneur Act’ (Law 4/2013). This law, which rewards and encourages the entrepreneur, is intended to reactivate the economy by attracting foreign capital. However, Spanish authorities have been criticized for the act, since business transactions from abroad are “time-consuming”, blocking foreign investors and hampering the process, says Sergey Sinichkin, a Russian real estate expert based in Marbella.
The most controversial point of this law is that any investment above €500,000 offers the investor a shortcut to residency in Spain. Similar deals have already been applied in other European countries, such as Portugal or the UK. In the latter, the minimum investment required to obtain a residential permit is £2 million.
The initial minimum amount established in Spain (€160,000) was considered “extremely low” and would have meant real problems for the country, explains migration lawyer Ricardo Bocanegra. “As authorities of different ministries have informed me, many people from countries such as Algeria were willing to buy a small apartment for that amount of money, filling our neighbourhoods with ‘weird’ people,” he recounts. However, Mr Bocanegra also believes the new €500,000 minimum is “excessive and tremendously restrictive”, since very few people can afford paying luxury prices.
Russian and Chinese arrivals represent more than half of total residential permits processed in 2014. This might be explained because the new law offers free access for non-Europeans inside the Schengen area. But the initial findings didn’t fulfill the expectations.
Real estate expert Mr Sinichkin reveals that just a couple of his clients received the so-called ‘golden visa’ in 2014, “although the decision was taken in order to buy a house and not because of the residential permit.” From Mr Sinichkin’s point of view, “this law is more like a marketing policy from the Spanish government trying to attract new investors that didn’t work very well.”
Fear of phantoms
Criticism piles up when the two main problems with this law arise: control regulation and taxes. Lawyer Mr Bocanegra declares that “the main obstacle regarding this law is the complexity of transferring money from abroad to Spain.” He comments that, for instance, in order to open a bank account foreigners are asked for too many documents. They need to declare any source of their worldwide incomes, and “so much information that in many cases they are not able to gather because it doesn’t even exist.” This creates, in Mr Bocanegra’s opinion, “an absurd situation”.
On the contrary, town tourism councillor Mr Hernández believes those inspection-related hurdles are part of European regulations and that the Spanish banking system just obeys the law. “I don’t think control measures are evil, it is a way to prevent mafias settling here.”
The second problem this policy stumbles upon is what José Antonio Sau, a reporter at La Opinión de Málaga, calls “Spanish regulatory fatigue”. “There are so many taxes to be paid in Spain that sometimes buying a house may not be worth it,” Mr Sau declared. “And many cease to be a tax resident although they don’t leave Marbella.”
For Mr Bocanegra, who is also president of Marbella International Club, fiscal greed is scaring off foreigners. “If we want them to live in Spain we should not make it difficult for them,” the lawyer remarks. Mr Hernández goes beyond this and proposes there should be a different tax treatment for foreigners, so they are not taxed in Spain as citizens are, except for on properties they own. However, as the town councillor expressed, “this is hard to sell politically”.
Money laundering is the reason for this Kafkaesque bureaucracy and tax burden. Marbella has played a key role in Spain’s recent history on this matter. Mr Sau, the journalist who specialises in legal issues, tells that the Marbella Instruction Court 5 took on famous anti-money laundering operations such as in the Malaya Case – that sent another ex-mayor of Marbella, Julián Muñoz, to jail for corruption – or the Ballena Blanca Case, the most important anti-money laundering operation in Europe with branches in the US, Canada and Turkey, among other countries. Since then, authorities have tried to more carefully regulate capital flows in Costa del Sol.
Marbella is also an ideal base for international mafias due to its strategic location. Gibraltar is very close and the city is very well-connected by land, sea and air. The police once told Mr Sau that when they go to find a fugitive they don’t know where to start. Some residential areas in Costa del Sol are sprawling, with no defined streets. Mr Sau acknowledges that capos of Italian, Russian and British mafia might be found there, although he acknowledges that “these stories are anecdotal and not very representative”.
The vast majority of foreign investors come to Marbella to do business and “we would only have to apply the anti-money laundering regulation to anyone who has a criminal record, comes from a tax haven or suddenly deposits lot of cash in a bank,” the reporter suggests.
According to Mr Sinichkin, “Spain should not be over-scared of phantoms”, and he makes a call for Spanish authorities to be more flexible in order to attract more investors. He comments that, “any project of building a house seems to not please Marbella’s Town Hall” and that Russian investors feel tired after dealing with authorities.
However, there have been some cases of corruption in which Russians have been involved, such as the Majestic Case in Casares (Málaga). Also, the judge Baltasar Garzón gave a blow to Russian and Georgian mafia in Costa del Sol a few years ago. But, once again, these stories are unusual and not representative.
Overall Marbella has paid special attention to Russians lately and it’s not by chance. Russians were at some point in 2013 the second largest foreign investors in the real estate market. They represented 9% of foreign purchases.
In the midst of the financial crisis, when the Arab Spring was coming to an end and real estate sales were sharply dropping, the upper class Russian investor seemed to be a breath of fresh air. Without doubt the Russian was the new target for luxury property dealers in Marbella.
Meanwhile, housing prices in Marbella decreased by nearly 27% between 2005 (€2,600 per m²) and 2013 (€1,900 per m²). Real estate firms were able to offer more attractive rates to foreign investors, while many Spanish families were forced to sell their properties – in many cases to big corporations and banks – so there was a large assortment to choose from. In 2012 foreign investment restarted and today continues to increase, currently accounting for a historical high of 14% of the total number of national housing purchases.
Welcome Mr Ivanov
“When I first came to Marbella there were very few Russians,” states Mr Sinichkin, who today runs the real estate agency Drumelia and the real estate development company Los Ceibos, both located in Marbella. He specialises in the luxury property sector for Russian clients, selling properties valued between €9 and €16 million.
He started working in the real estate sector in Saint Petersburg back in 1997. His boss was an Irish businessman who bought a big piece of land in Marbella and brought him on as his assistant. They immediately opened an office in Puerto Banús and he soon realized that speaking English, Russian and a little Spanish meant he could specialise in working with Russian clients: “I was able to understand their mentality, their needs better than anyone else, when making jokes or having a drink.”
Mr Sinichkin explains that, when Russians discovered Marbella in the beginning of the 2000s they saw a city with a wide infrastructure, all international brand stores, gastronomy, outdoor sports and many other facilities: “You can get in Marbella the same as in Moscow, London or Paris, under the sunshine.”
Today Russians represent 4% of the total non-Spanish population in Marbella. Yet it is a tiny community, together with the Ukrainian community, and one of the few foreign populations that have increased between 2013 and 2014. Although the number of Russians might not be significant, they can have significant economic effects. But the Russian investor is a very different type of client to those Marbella is used to.
The typical Russian investor is male and between 30 to 50 years old. Usually he is an entrepreneur with his own business back home. The average purchase they make in the housing market is anything from €500,000, up to €2 million. The first idea is to have a holiday home but a lot of them fall in love with Marbella and move their families there. The kids go to school – Marbella has nine international schools – and sometimes their wives also open a small business. Meanwhile the husband typically carries on working in Russia, visiting the family from time to time.
Every luxury house sold may bring “as much wealth as a small company does”, says Mr Bocanegra. It requires expensive upkeep, including carpenters, plumbers, gardeners, domestic service: it creates jobs. It is therefore believed that many Spanish and foreign families are supported thanks to luxury properties.
Russians also spend large amounts of money in restaurants and shopping, their kids go to extracurricular activities or they organize big parties, inviting the Russian elite. Mr Bocanegra reveals that the Russian Prime Minister’s wife, Mrs Medvedeva, has recently shown interest in investing in Marbella.
Some efforts have been made to make them feel at home. Press, radio channels or specialist Russian language magazines rise slightly; the Saint Petersburg Museum recently opened; there is the Marbella International Russian Film Festival; and shop window signs can be read in Spanish, English and Russian all over the city.
Russian fashion magazine on the shelf in Marbella. Credit: Ana Escaso.
Marbella also celebrates two luxury property events oriented to attract foreign capital and promote sales in this sector: Marbella Luxury Weekend and Marbella International Property Show, with Russia as a close partner. Mr Sinichkin estimates that in Marbella luxury residential areas such as the Golden Mile, Sierra Blanca and La Zagaleta, Russians own about 15% of properties.
Although Russians are mainly interested in luxury properties they are not afraid of investing in other sectors. Some, for instance, have bought the distribution of water in Mijas (Málaga), while Russian dealers in the alcoholic drinks sector have invested in wineries in the North of Spain. However, in Marbella, according to Mr Sinichkin, “Russians come to relax”.
Mid-2014, the Russian dream that seemed to push up the economy of Marbella was frustrated by reality. The political conflict between Ukraine and Russia caused a mutual food ban between the West and Russia that brought, among other consequences, the devaluation of the Russian rouble.
Since then, the rouble has continued to devalue dramatically. Mr Bocanegra, who has many Russian clients and speaks fluent Russian, said that on his last trip to Moscow he got exactly half the roubles he has traded for at previous times. Today, Russians still buy houses in Marbella, although this conflict is certainly damaging Russian investments abroad.
From Mr Sinichkin’s real estate business it is confirmed sales volume decreases at the same time the rouble value does. In fact, Russian homebuyers’ representation in the total foreign real estate purchases has dropped from 9% in 2013 to 5.8%.
There are optimistic voices from Russia that believe the rouble will recover in a few months; pessimists, like Mr Sinichkin, think it won’t happen in less than two years. Mr Bocanegra also recalls that deadlines for Russia to pay international debt have just expired, which adds another negative factor for Russia’s financial recovery.
For this reason Marbella has broadened its marketing strategy and is now opening to ‘new markets’ such as those offered by Chinese investors, while also bringing back old partners from the Middle East, who are again in high demand in ‘the Golden Triangle’ (Marbella, Benahavís and Estepona).
Welcome Mr Li or is it too soon?
“The volume of Chinese investment deals in Marbella is currently not very [significant],” says Leticia Chen, a Chinese investment advisor placed in Málaga. According to her, Chinese buyers have purchased very few houses between €500,000 and €1 million. The Entrepreneur Act is not really encouraging Chinese investments in Marbella, despite it being the top Spanish city for luxury properties. Mrs Chen considers this new policy doesn’t benefit Chinese investors in any way. “They have no interest in living in Spain, they just want to come on holidays,” she stated.
The Chinese are initially not interested in Small Medium Enterprises (SMEs) and Spain is mostly built on a small family business model. Even though some Chinese capital has been invested in Marbella, such as in hotels or restaurants, the tourism industry is not their preference. They would rather seek high-tech companies and large financial investments and so far Marbella has nothing similar to Silicon Valley.
Councillor Hernández explains that Marbella has recently opened a Chinese shopping market. Although the Chinese are a very special type of client – they are well known for being very superstitious – Mr Hernández said the feedback obtained so far is very optimistic. The Chinese like luxury activities such as shopping or playing golf, which are all symbols of Marbella. But the city itself still has to adapt. “The Chinese demand special needs that must be covered, otherwise they would not come,” says the tourism councilman. “Hotels should be more specialised and have, for instance, Chinese buffets or hot water kettles in every room – little quirks that make a difference for them to feel at ease.”
Mrs Chen, who plays a key role in advertising Andalusia in China, believes it’s a mistake each city in Costa del Sol has a different strategy to promote itself. She suggests that, in order to attract Chinese investors the whole area should take up a stance under a single brand, because “unity is strength”.
The Chinese certainly seem to be interested in exporting Spanish food products. Mrs Chen reveals for the very first time that she, in cooperation with the Bank of China, is in the process of creating a platform to promote foodstuff exports exclusively from Andalusia. Mrs Chen specifies they will just work with high quality products and sensible companies. They estimate this platform will reach around 300 million people.
Ana Escaso Moreno is a journalist currently based in Luxembourg. Her interests are migration, human rights and European politics. Image source.