The Missing Funds For Resort Modernisation

Resort modernisation was one of the key themes behind the Balearics tourism law of 2012. One of the measures included in the law was the payment of a tax equivalent to 5% of the value of reconstruction or rehabilitation of a hotel that underwent a change of use. This change of use referred to the establishment of tourist condo hotels or a complete alteration to residential apartments for sale. Such conversions, and in the build-up to the passing of the 2012 law they were one of the most publicised aspects, have thus far been few and far between. Yet the pre-law publicity hinted that they would be many and close between and, moreover, that many 5% levies would find their ways into the coffers of different town halls who would then be able (obliged) to use the money for infrastructure modernisation in the vicinity of the converted hotel.

It all seemed, therefore, like a fairly decent scheme. But as conversion has been only fractionally more than zilch, it now seems like less of a decent scheme. Why hasn't there been a dash to convert? Finance almost certainly, but was there ever the demand for condos (or cash available to buy them) and is there not already a surplus of apartments for sale in tourist areas? And why might someone wish to buy an apartment in a tourist area from a former hotel. Not as a holiday rental private apartment, surely?

Conversion fever being absent, additional funds for town halls are also absent and so modernisation of resorts or parts thereof is being starved of additional funds. Yet these funds are badly needed. There are old, all but obsolete hotels in Mallorca and there are old, all but obsolete parts of resorts as well. Forty or fifty years on from the great boom times, the coastal urban areas of the island are showing their age and looking tired.

The regional government is hugely dependent upon the private sector to assist with this resort modernisation. The funds it receives by way of project investment from Madrid are laughably small - some 70 odd million euros in 2014 - and those which it can afford to allocate are similarly paltry and determined by a lack of cash and an inability to raise credit, even if banks were willing to extend it.

The tourism ministry has announced a series of projects that will commence in 2014 and run into 2015. The funds available amount to a little over 12.5 million euros. The government may be able to find some more cash and may also be able to announce more than the 15 projects that it has, but 12.5 million does not go a long way when one considers the scale of modernisation that needs to be undertaken across the island.

What is interesting about this 12.5 million, though, is that it is a sort of special fund. It comes from the hoteliers. Not because they have been disposing largesse but because they were liable under an agreement drawn up in 2009 to hand over 4,000 euros for every hotel place that had to be "regularised". There were, or supposedly there were, a whole load of hotel places that were illegal.

The then tourism minister Miguel Nadal and the Council of Mallorca reckoned that there were 50,312 hotel places that required regularising, though they weren't In fact all hotel places. Roughly a half related to tourist apartments of the type which hoteliers operate. Whatever the type of accommodation, there was an apparently large discrepancy between what these 50,000 or so places should have generated and what the government at the time anticipated receiving - up to 70 million euros. There is now an even greater discrepancy. Since 2009, the total number of places that have been regularised is less than 10% of the 2009 figure, and the amount raised has totalled only a bit more than 18 million euros, 12.5 million of which is now earmarked for the 15 projects.

So whatever happened to the 50,000 places and what, therefore, ever happened to the funds that were going to be raised? Both seem like pretty legitimate questions, but neither have an obvious or satisfactory answer. Perhaps the tourism ministry got the figures wrong back in 2009. Who can say? The process of regularisation and so the period for which the government receives funds are due to end in 2015, so 50,000 places are most certainly not going to be regularised.

The shortfall on the 2009 estimate potentially gives a lie to the government's belief in the private sector contributing to modernisation and also to the rapidity with which this might be undertaken. Though modernisation was a tenet of the 2012 tourism law, the legislative framework for the regularisation, the raising of funds and yes, modernisation, was, remarkably enough, established under the 1999 tourism law. Which all goes to prove how slowly things can proceed and how, even once they do proceed, they do not proceed as might have been anticipated. Modernisation? It'll take years.

Fourteen Years Of Silence: Holiday rentals

In February 2011 a news story that did the rounds dealt with a visit paid by inspectors from the Balearics tourism ministry to an apartment in Santa Ponsa. It was occupied by Russian tourists who had booked the apartment via a British website and had paid 4,500 euros for a fully equipped flat with various services including the use of a private pool. The inspectors went to a different apartment, one that had been advertised on the internet as a "luxurious" property, and there a British couple was renting it for 820 euros. Then they went to another apartment, this time in Illetes, where a family of five was paying 6,000 euros for two weeks rental. The inspectors didn't bother going to a house in Santa Ponsa about which German tourists had posted a review on the internet. The tourists' experience of the house couldn't have been better. They spoke about it as though it were a hotel and gave it a glowing recommendation.

The first of these inspections was the one that really drew the attention. The owners were liable to a fine of 30,000 euros. The apartment, as with the other properties, was being offered for rent illegally.

It is important to look at the date. February 2011. Almost a year and a half before the new tourism law in the Balearics was passed. It is also important to bear in mind what was explained at the time. The infractions that the inspectors had discovered, all of them in fact during 2010, contravened Article 72.3 of the general tourism law. The previous law. This stated that "the publicising, contracting or commercialisation of establishments, activities or businesses which do not have the required tourist authorisations" will be considered serious infringements of the law.

The 2012 tourism law merely reinforced what already existed in Balearics legislation. There are plenty of people who will know that this was the case, but to gauge the reactions in the wake of the reform of the national tenancy act, you might think that penalising owners of private accommodation was somehow new. It most certainly is not.

This reform strengthens the hand of the regional government but it doesn't fundamentally alter a situation that has obtained for years. But only now, or so it seems, are strong voices of opposition to the government's stance being raised by bodies other than owners themselves.

Much as I applaud the Chamber of Commerce having weighed in to the debate, I have a question: where has it been all these years? And the same question applies to the restaurant sections of the business association CAEB and of the small to medium-sized businesses organisation PIMEM. It also applies to the Balearics wing of the PSOE socialist party. Where have any of them been and why have they not raised stronger objections in the past?

And the past is worth taking into account. When was Article 72.3 set in legislative stone? The answer is 1999. The law was passed a couple of months before the elections that year; elections that saw PSOE form its first ever government in the Balearics. So, let's ask another question. Why did PSOE, if it is now against the stance on private accommodation, not seek a reform of this part of the tourism law during either its 1999-2003 or 2007-2011 administrations? Take note: the actions of the tourism inspectors were in 2010, when PSOE was in power.

There's a further question. 26 September 2006 was a not unimportant date in the history of Mallorca's rental accommodation. It was the deadline by which properties had to be registered as either tourist or residential lets. There was a category of accommodation which couldn't be registered as tourist lets. Private apartments. Why did PSOE not raise an almighty fuss about this at the time?

Political opportunism probably explains why PSOE has now jumped on the bandwagon in opposing the government's position, but this doesn't explain why business associations have seemingly been so mute in the past. 

Better late than never, but business, other than the highly organised hotels, has failed until relatively recently to show its muscle in anything like a co-ordinated and assertive fashion. Where holiday rentals are concerned, the penny has finally dropped and made a loud clanging noise of the damage that can be caused to businesses that form the non-hotel complementary offer. Previous silence can probably be attributed to indifference, complacency or lack of organisation. The noise now can be attributed to an awful realisation that members' interests could be harmed. It's a welcome noise, but why has it taken so long for it to be made?


Any comments to andrew@thealcudiaguide.com please.