Martinsa-Fadesa -- which operated out of Ireland and dealt with several agents here -- preparing to declare bankruptcy in the face of debts of €5bn.

Spanish housing crisis claimed its first major victim, with property developer Martinsa-Fadesa -- which operated out of Ireland and dealt with several agents here -- preparing to declare bankruptcy in the face of debts of €5bn. It has created major shockwaves here, among customers who are still awaiting the completion of their dream home in the sun.Another announcement, which sent ripples across the industry this week, was news that Larionova, the biggest and most high profile of the Irish foreign property agents, is also to shut up shop, amid difficulties getting payment from developers.These fresh worries come on top of the triple whammy already tarnishing Irish investors' little slice of abroad, with interest rates doubling in the past 18 months, property prices in some previous 'sure thing' hotspots such as Spain, Bulgaria and even the US taking a hammering and -- the final straw -- the taxman relentlessly coming after what little of the spoils may be left.
The Revenue investigation into offshore investments is far from over, having already identified more than 2,000 Irish owners of foreign properties and with more trawls to come.Letters have been sent out to those suspected of owning assets abroad, which tells them that under EU legislation, they have been identified as being in receipt of income from an offshore bank account or accounts, informing them that while this is not illegal, the holders must pay tax on any interest earned on the account.
Where the accounts were opened in connection with the purchase or ongoing maintenance and running costs of a property abroad, Revenue asks for clarification regarding the date the property was purchased; whether it is being rented; the total costs involved; and the source of finance for the purchase.
In addition, they are also seeking the identities of intermediaries such as estate agents and lawyers who assisted in the purchase of the property.
They ask that accounts, tax with interest, and any necessary penalties owed be forwarded.Those not yet identified as possible tax defaulters are urged to come clean -- with a voluntary disclosure granting benefits such as a reduction in interest from 100pc to 10pc, non-publication for tax evasion and non-prosecution for tax evasion. Meanwhile, officials warn they are monitoring advertisements and websites, exchanging information with foreign tax administrations and continuing to seek new ways to identify the owners of offshore property.Those involved in the selling of overseas property publicly say they are confident that most people are now tax compliant -- but privately, they may not be so sure, with one industry source actually laughing at the idea that this might be the case.
He said that while anyone who purchased in the EU might be an easy target for Revenue, those who bought in the US -- the third most popular destination for Irish property investors -- will prove more difficult to catch, as will anyone who paid cash for property in any market who did not buy via an Irish agent.
Ironically, it is this last group who is the real target for Revenue, keen to know whether hot money had been used to make the purchase.One investor, who would not be named, told the Irish Independent that he and his wife had bought a classic apartment in Hungary's capital city, Budapest, almost five years ago. Rent on the property has only recently begun to cover the cost of the mortgage top-up the couple had secured on their own home. They recently received notification from Revenue that their tax affairs are under investigation, though they have made little profits from their little dabble overseas.'The profits are probably in the hundreds rather than thousands, especially when you take into account the renovation costs, which weren't cheap. What we're more worried about is that we got a top-up on our mortgage here and are claiming tax relief on that, so it could be a little bit sticky," he revealed.
"On the face of it, it might not be seen to be a particularly good investment, especially with all these new complications, but because we bought an old building in a really central location, I don't think we'll lose out in the long run."
Tom McGrath, a property lawyer specialising in overseas markets, confirmed that he is seeing increasing numbers of clients who are not tax compliant and who are in trouble.He advises them to take immediate action to deal with their tax problems, saying: "Don't sit on it. There's bound to be a solution."Other distressed clients have bought without any legal advice and got themselves into a contract with a developer who has failed to meet his commitments.
"The worst offenders are in Bulgaria," Mr McGrath revealed, where investors are asked for more money at the close of a sale or are asked to pay a certain sum under the counter."We ask clients not to participate in this activity -- they're not doing themselves any favours."With regard to the credit crunch, he does not think many Irish people have been forced to sell their property abroad yet -- but adds that he "hopes the situation is not as bad as people are predicting".In Spain, property prices have been coming down hugely, due to planning corruption and oversupply -- with corruption rife in tourist areas. However, Mr McGrath says Spain has a practical way of dealing with corrupt developers: "Forget about tribunals, they lock people up."
He finds overseas sales to have largely cooled off, but he is still seeing a steady flow of clients interested in investing overseas -- particularly in Portugal, Spain, France and Italy.Meanwhile, there are also Irish people still investing in Poland and Germany, he said.Colm Murphy, of Property Tax International, said it is vital that people are aware of their tax obligations here and in the country they bought.
Technological advances in computer software have made it a lot easier for tax officials across Europe to share information, he revealed.
In Spain, for example, new software was implemented some months ago, which alerts the tax office when there has been a change in the notary deeds of a property following a sale.Mr Murphy's company has seen an increase of around 20pc in the number of clients coming to them with tax concerns."People are coming to us and saying 'I have this property in Spain and haven't done anything about it'. Buying property overseas is hard at the best of times -- most of the time people are buying in the dark, because the estate agents are just trying to get the cash off you."

Other issues can arise, of which Irish buyers may be ignorant. "In some countries, such as France, your domestic will doesn't cover your French property and so if a couple owns a property and the wife dies, her share will be broken down among all her living relatives."

Simon Palmer, of Empire Consulting, warns that it is very short-sighted to try and dodge tax on foreign property investments.

"During the boom, the tax man wasn't clamping down, but he is now," he said.

According to Mr Palmer, some unscrupulous agents are telling would-be investors that rent will cover a certain section of the mortgage and they will "just have to put this much in" to make up the shortfall.
"But property should always wash its face -- even from the outset," he said.
He advises people to avoid emerging markets, such as Bulgaria and Turkey, and tourist resorts, because they are too risky. Wiser investments are made in the UK, a French city, or Gemany.
"Then they could take a punt at a higher-risk market," he said.