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.