Proposals to reform Spain’s housing law: how they could impact the real estate industry
Christopher Clover, real estate expert in Marbella for over 5 decades, gives his perspective on proposed housing legislation by the current Spanish President, Pedro Sánchez. Find out how it could affect you.
We are receiving many queries with respect to the shocking announcement made last Monday by Spain’s Prime Minister, Pedro Sánchez, outlining a series of proposed measures aimed at addressing the country’s ongoing serious housing shortage-crisis and increase in long-term rental prices across Spain.
These are proposals, not legislation
Despite the fact that many of his points are legitimate and logical, his announcement regarding his aim to increase the TAX on property purchases by foreigners outside EU, represents an intention to introduce legislation by a government facing significant pressure from its coalition partners and grappling with numerous critical political challenges, including difficulties in securing approval for its own legislative agenda.
This legislation needs to first be approved by Congress
Increasing the cost of properties to non-EU residents and citizens
The proposed measure of making purchases by non-residents and non-members of the EU prohibitive from a fiscal point of view, although alarming, is by no means certain to be approved, and it will no doubt take months to even draft the text of the law, but the very news itself, can disrupt the market, in two ways:
It is likely to create an increased demand from those potential buyers outside the EU to buy properties in Spain before any restrictive law of this nature can be approved, if indeed, the government is able to obtain approval.
On the other hand, it is also likely to create confusion and noise in the market place, and consequently might deter some individual as well as institutional investors from purchasing properties in Spain.
Considering that this measure is projected to impact only 27,000 buyers (about 4% of the total residential sales)—and that many if not most of these properties are purchased principally for personal holiday use by their owners rather than for tourist rental income and real estate speculation as Sanchez claims, it is highly doubtful that this proposed legislation would meaningfully improve housing availability for long term rentals under any circumstances.
Increased taxes on rental properties
With respect to the increased taxes announced for short term rental properties, by adding VAT to short term rental contracts, this is only the latest news on top of several steps taken in the last couple of years, to discourage touristic rentals, which is seen as part of the cause of the serious shortage of long-term rental properties and increase in rental prices in many areas of the country.
Short-term rentals are now facing restrictive legislation from the EU
Short term rentals are now facing restrictive legislation and controls from the EU, the national government, the regional governments, and even local government as well as water-tight controls with respect to taxes. Sanchez’s statement of his intention to add VAT to touristic or short-term rentals is therefore not a surprise.
For many months, we have been advising the potential buyers of properties of these increasing controls, where even a homeowners’ community can prohibit short term rentals of properties. Any investment in apartments or villas with the intention of putting the properties on the market for short term rents, should be made with caution, given the continuing, evolving restrictions.
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