For some time now Spain has faced a shortage of properties for locals to live in, with house prices soaring and rental properties in short supply. As a consequence of this Pedro Sánchez, the Prime Minister of Spain, has announced in recent days “unprecedented” plans to try and assist with this housing crisis in Spain. This is part of the government’s plan to make housing the “Fifth pillar of the welfare state”.
Foreign buyers and tourist rentals are being blamed for the housing crisis - but what is the reality of the situation and what is being proposed?
In the announcement Mr Sánchez said that “non-resident non-EU foreigners” had bought 27,000 properties in Spain during 2023 and that these
properties had effectively been bought for speculation rather than to live in. The implication in the announcement appears to be that huge numbers of “foreigners” are buying in Spain and sitting on their properties, which is causing the housing crisis. That figure actually only represents around 15% of the whole market and EU nationals make up a much larger part of the “foreign” buyers in Spain.
Of course, those who have been around the Spanish property market for some time will know that speculation in the Spanish property market is nothing new. We have been in the market for long enough to remember when the vast majority of people bought primarily for capital appreciation (i.e. investment). However, since the 2009 crash there has been a correction and now fewer British people in particular buy properties in Spain purely for speculation. Our experience over recent years tells us that the majority of buyers purchase a property in Spain for their own use, with a view to potentially renting out the property when they are not using it (i.e. rental is not the motivating factor).
Although the property shortage that Spain is experiencing at the moment is a real issue in some areas, is this latest proposal of targeting non-resident non-EU foreigners as his office described them really the solution or is it likely to cause unintended consequences for the tourism industry in Spain as a whole which may far outweigh the benefits? Time will tell.
So, what has been announced?
The Prime Minister has announced various different measures aimed at bringing in housing reforms which would in theory increase greater access to housing for Spanish citizens, making housing more affordable. Unsurprisingly, the proposal that has generated all the headlines was the following statement.
“We are going to limit the purchase and sale of homes by non-resident non-EU foreigners; and we are going to do so by increasing the tax burden that they will have to pay in the event of a purchase of up to 100% of the value of the property in line with countries such as Denmark or Canada"
Other measures announced at the same time include.
- A change in taxation on rental properties with an increase on touristic rental and exemptions for rental in accordance with the reference index
- The rental of properties to tourists to be treated as a business
- A tightening up of tourism regulations
- A clampdown on undeclared income from rented properties and illegal rentals
- More construction to increase the supply of properties.
- A revolution of the construction industry to promote innovation and modernisation so that properties can be built more quickly and cheaply
- A programme for the renovation of empty houses
- Better protection for tenants
What is likely to happen with this increased tax burden when buying property in Spain?
As always, the devil is in the detail and even the Spanish government have stated the proposal would be finalised only after careful study. Even if this proposal advances it may well not receive any final approval given previous struggles to pass legislation.
The headlines, therefore, whilst provoking heated discussions on all sides, are still some way off being implemented and it is important to remember that this is just a proposal at this stage.
Whilst the Prime Minister of course will not have made this announcement without having thought about the detail, some of the most obvious questions which remain are.
- Will any tax be an increase in the ITP or will it be a special separate tax?
The announcement states that there will be a tax on the purchase of property. The natural assumption is that this is an increase in ITP (Transfer Tax) but it may not be.
- What rate will that tax be at?
Obviously “100%” is the headline grabbing figure but technically it is a tax “up to 100%” that is being proposed.
- The measures are stated as being in line with Denmark or Canada.
In Canada the Non-Resident Speculation Tax depends on the area you are buying in. In Ontario for example it is at 25%.
- Will this apply to all properties equally or will there be different thresholds and tax rates for different value properties?
- Will this apply to all of the autonomous regions or just to those areas most affected by the housing shortage?
The reality currently is the housing crisis is more acute in certain areas so would it make economic sense to concentrate on those areas rather than having a blanket approach that risks affecting the Spanish property market as a whole.
- Is this a temporary measure or a genuine and permanent change
- Who exactly will it apply to, and will it be possible for countries to negotiate an exemption?
It wasn’t too long ago the Spanish Government introduced their much-lauded and very successful Golden Visa scheme aimed at encouraging non-EU investment in Spain. That initiative allowed (and encouraged) Spanish residency in exchange for the purchase of a property worth €500,000. This scheme is due to be abolished later this year.
What is certain is the proposals do not apply to people buying property in Spain at the moment, however, it may well affect how potential property buyers will view Spain as a future destination.