Transparency and legislation in the Property sector

Miguel Hernández. Professor. IE Business School

3 July 2007

A recent survey shows that most Spanish businessmen believe corruption is rampant in the real estate industry. But recent legislation doesn’t go far enough to combat the problem.

On May 8, the Instituto de Empresa and Gavin Anderson & Company published Politics and Urbanism: Transparency and Legislation in the Property Sector. This report analyses the present and future of the Spanish property sector, as well as the business community’s perception of the industry. It also makes recommendations and proposes solutions for the sector and its problems, based on the perceptions of the senior executives, chairmen and managing directors chosen from a representative sample of Spanish companies to participate in the survey.

A high level of participation was achieved by promising the respondents anonymity and confidentiality. The following conclusions, which I have separated into quantitative and qualitative categories, were drawn from the answers given to the eight simple questions on the survey.

On the quantitative side of the conclusions, 75% who took part in the survey considered that real estate was one of the most corrupt sectors in the Spanish economy. But they also believed that corruption would not cause the sector’s collapse in the near future. What is more, 68% thought no real political resolve existed to root out this corruption. When asked about the recently adopted Land Act, 92% did not think it would solve the problem, while another 70% had a poor opinion of what the government had done so far.

The qualitative side of the conclusions showed that the perception of corruption is greater among those professionals with the closest links to the sector. Not surprisingly, lawyers were shown to be the most critical. Yet the perception of widespread corruption did not dim the respondents´ expectations of growth for the sector. Nor were they very optimistic that the situation would improve with the implementation of the Money-Laundering Act, the new Land Act or the Venture Capital Act. An analysis of the data shows there is no clear agreement among the respondents on what measures would succeed at eradicating the corruption.

In contrast, the Instituto de Empresa and Gavin Anderson recommend introducing greater transparency within the sector, particularly in management and administrative procedures. In view of the results, we also believe a political commitment to wipe out urban corruption is vital. Regional governments are highly regarded by the respondents and thus should be encouraged to assume the administrative powers granted by the constitution.

A consensus exists on the need for a new Land Act that would limit the administrative powers of the local and regional authorities, as well as the players involved. The conceptual origin of the Land Act (1956) predates the Constitution to a time when today´s 17 autonomous regions did not exist. Regional plans, which include regional territorial planning, should be the cornerstone of a new legislative framework.

The results of this survey also point to the need for a watchdog committee that would draft and oversee the implementation of disciplinary measures. We are convinced of the need for legislation that ensures transparency in the property sector. The example of the Real Estate Investment Trusts (REITs) recently introduced in the United Kingdom, France, Germany and Italy could easily be used as a point of reference for the Spanish market.


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