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PROPERTY

Will Spain’s Canary Islands limit sale of properties to foreigners?

There are calls in Spain’s Canary Islands to limit the purchase of properties by non-residents and foreigners, but could authorities legally do this and what are other potential solutions to the archipelago's housing problem?

canary island properties foreigners
A view of the coastal town of Puerto de la Cruz in Tenerife, a popular spot for tourists and second-home owners. Image by GarryKillian on Freepik

Canary nationalist political party Nueva Canarias wants the regional government to address the large number of property purchases by non-residents in the archipelago, and to an extent limit the number of properties that can be bought by foreigners in the popular holiday islands. 

This comes after Spain’s other archipelago, the Balearic Islands, also started this same debate in November 2022, with the regional Senate agreeing to discuss solutions.

READ ALSO: The plans to limit foreign property buyers in Spain’s Balearics

The Canary Islands are in the midst of a housing crisis, with high rents, a shortage of properties, and an increase in holiday homes.

The main islands of Tenerife and Gran Canaria also suffer from overpopulation.

With an area of 7,447 km2, the archipelago is one of the smallest regions in terms of landmass, but its 2.2 million inhabitants rank it seventh in terms of regional populations in Spain, and in practice this means there’s less space on which to build homes.

In fact, the Canaries have one the highest population densities in Spain and Europe with 302 people per km2. Gran Canaria, where the most populous city of Las Palmas lies, is higher still: 548,41 inhabitants per km2.

“We have a very serious residential problem that can get worse,” said the Nueva Canarias party spokesman Luis Campos, who wants to limit the number of foreigners who can buy property on the islands. 

“If their properties are rented out, it shouldn’t have a negative effect. It could even improve the housing stock in this sense… But another thing would be to buy a flat in a popular neighbourhood and renovate it with the intention of obtaining very high rents from the lease. This can lead to processes of social change and gentrification”, explained Campos.

“Another scenario would be that foreigners buy a home in order to rent it out on Airbnb or for their own seasonal use. In these cases, it would reduce the amount of available housing on the islands,” he added.

In the third quarter of 2022, 33.69 percent of homes in the Canary Islands were purchased by foreigners according to data from Spain’s College of Property Registrars.

This is the highest proportion in Spain, ahead of the Balearic Islands at 31.46 percent and well above the average in the whole of Spain at 15.92 percent.

Buying property in the Canary Islands is seen as a good investment asset for many foreigners due to the relatively lower cost, mild year-round weather, beautiful surroundings, and strong tourist industry.

canary islands limit property purchases foreigners

Las Palmas de Gran Canaria is the archipelago’s most populous city with 378,000 inhabitants. Photo: slavikfi/Pixabay

What these stats don’t tell us, however, is if most of these purchases are by foreign residents or non-residents.

Experts believe there are clues that point to the fact that many non-residents are buying homes, such as the high percentages of mini 40m2 apartments being sold and the high concentration of second homes located in municipalities with the most tourists.

Alejandro Armas, a Tenerife geographer at the University of Leipzig, told El Diario that there should be no difference in whether the houses belong to foreigners or not. For him, the key lies in what the properties are used for, whether they’re being rented out to the local population or only used as tourist rentals.  

So far, it’s not exactly clear what the Nuevas Canarias party wants the exact rules to be, but they have cited examples of the Balearic Islands where they have asked that the rules “prevent second residences from eating up primary residences”.

Is it possible to restrict the number of foreigners buying homes?  

Denmark, Malta and the Aland Islands in Finland all have restrictions on how non-resident foreigners can buy properties in their territories. However, they introduced these before entering the EU and these limits were factored in and accepted by Brussels.

For local authorities in both the Balearic and the Canary Islands it could prove difficult to go against the EU’s legal principles of the free movement of people and capital, experts say.

This means that other potential solutions may be needed. 

Many agree that there are several solutions to the problem that don’t actually involve introducing purchasing limits for foreigners.  

One potential solution would be to increase taxes. The Spanish government is already seeking to amend the wealth tax laws and wants to introduce a new tax for high-net-worth individuals.

This means that non-resident taxpayers whose Spanish real estate assets are worth more than €3 million would have to pay an extra tax.

It is believed that this would deter the highest earners from buying up luxury properties on the islands. The average sale price per square metre in the Canary Islands is higher among non-resident foreigners (€2,522) than among residents (€1,622) and nationals (€1,560), according to the latest figures from Spain’s General Council of Notaries.

Another solution is to follow a measure similar to what has been done in Barcelona to make it very difficult to buy properties to rent out on Airbnb. In the Catalan capital, it’s illegal to rent out your property to tourists on a short-term basis if you don’t have a tourist licence and the City Council is no longer issuing these.  

There are also policies in other countries that serve as examples, such as Ontario in Canada which has added a 15 percent tax for non-residents on to the sale of any home in Toronto and the surrounding area. While in New Zealand, they have also prevented non-resident foreigners from buying real estate from the existing housing stock.  

It’s worth keeping in mind though that a study carried out by American economists found that these last two models did not ultimately lead to a decrease in the number of foreign property owners. 

It remains to be seen what the outcome of the Canary Islands’ study on foreign property owners will be and ultimately what solution they decide upon. 

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PROPERTY

Why Spain is unlikely to ever ban foreigners from buying property

After several regions around Spain have attempted to bring in limits on property purchases by foreigners, members of Spain's government coalition have even started floating the idea of an outright ban at a national level.

Why Spain is unlikely to ever ban foreigners from buying property

In recent years several regions around Spain have attempted to put limits on foreigners buying homes and clamped down on tourist rentals. These are mainly in areas traditionally popular with foreigners, and many have become places with highly inflationary property markets.

In 2022 Canary nationalist political party Nueva Canarias demanded the regional government address the large number of property purchases by non-residents in the archipelago, and even suggested a limit on the number of properties that can be bought by foreigners altogether in the popular holiday islands.

READ ALSO: Will Spain’s Canary Islands limit sale of properties to foreigners?

Property prices have surged across Spain in recent years, sparked in part by an influx of post-pandemic purchases by foreigners, as well as tourist accommodation geared towards wealthy remote workers and digital nomads pushing up rental prices and pricing out locals. Increasingly, landlords will buy properties with the aim of converting them into Airbnbs, thus removing them from the pool of available (and affordable) housing stock for locals.

This comes after Spain’s other archipelago, the Balearic Islands, also started this same debate in November 2022, with the regional Senate agreeing to discuss solutions.

In the two decades from 2000-2020, the islands’ population grew by 50 percent – rising from 823,000 to 1,223,000 inhabitants. Around a third (32.67 percent) of property purchases in the Balearics are made by foreigners, and of those 57.4 percent are residents, while the remaining 42.6 percent are non-residents.

National ban?

But it’s not just a regional issue. In 2024, the debate rumbles on in parts of Spain particularly affected by foreign home owners and members of the Spanish government are even proposing similar measures at a national level. Though, it should be said, no policy has been decided on yet, and any move such as a ban (in whatever form, on whatever type of property) or even a limit would likely face fierce opposition from the main opposition parties, notably the centre-right Partido Popular (PP).

Sumar, the far-left junior coalition partner in the Spanish government, has even gone as far as proposing a three year ban on the purchase of housing by investment funds and non-residents in Spain.

This was recently outlined in a (for now) non-legislative proposal that was presented to the Spanish Congress’ Housing Commission. It was roundly rejected with the vote of, among others, its coalition partner in government, the Socialists (PSOE). That’s not to say the PSOE is totally against the idea, however.

Socialist Minister for Housing Isabel María Pérez said of the plans: “We agree on the philosophy of the proposal, but with nuances,” she said. “We have submitted an amendment but we think it will not be accepted, so we will not be able to support this bill,” she added.

So, from that we can take that the junior partner in the Spanish government wants to ban non-residents and investment funds from buying property in Spain, and the senior partner (Prime Minister Pedro Sánchez’s party, no less) supports the principle but not the practicalities.

READ ALSO: Spain’s new housing minister vows to protect second homeowners

The argument against

Clearly, non-resident foreigners buying up property in Spain, particularly in its space starved archipelagos, contributes to price inflation, saturates the market, and plays a role in pricing locals out of their own neighbourhoods.

However, it’s not that simple. Clearly, there is a difference between a non-resident foreigner buying a holiday home (perhaps to rent out as tourist accommodation for half the year) and a resident foreigner buying property to live in.

READ ALSO: How important are foreign second homeowners to Spain?

This difference has, for now, been reflected in proposed limits at both the regional and national level, rather than outright bans.

However, foreign home owners in Spain also make a huge contribution to the Spanish economy. In 2022 foreigners with a second home in Spain contributed €6.35 billion to Spanish GDP and generated more than 105,000 jobs in the tourism sector, according to the study “The economic impact of residential tourism in Spain” done for the Spanish Association of Developers and Builders (APCE) by PricewaterhouseCoopers (PwC).

The financial contribution made by these second-home owners in Spain is clearly significant. In fact, experts point out that the money brought into the Spanish coffers by foreign homeowners even outstrips some major industries.

“The contribution of residential tourism to GDP is triple that of the textile industry, double that of the timber industry and the same as the manufacture of pharmaceutical products in Spain,” Anna Merino, director of the Economics team at PwC, said when presenting the study. Every euro spent by ‘residential tourists’ adds €2.34 to Spanish GDP. On top of this direct contribution to the Spanish economy, the surrounding economic activity associated with the spending generated 105,600 full-time jobs in 2022.

So, there’s clearly an economic argument against banning foreign property purchases completely.

In the case of the Balearic Islands specifically, the proposals have met some opposition. The Balearics, which generates 35 percent of its GDP from tourism, according to figures from Caixa Bank, has long been a holiday or second-home hub for wealthy foreigners.

On this point, right-wing Popular Party member Sebastià Sagreras suggested in the regional parliament back in 2022 that conflating the foreign-buyer property market with local shortages is unhelpful, adding that the properties bought by foreigners, often worth more than a million euros, “do not compete” with those that cost €200,000 or €250,000 and are largely bought or rented by national residents.

Is it even legally possible?

Denmark, Malta and the Aland Islands in Finland all have restrictions on how non-resident foreigners can buy properties in their territories. However, they introduced these before entering the EU and these limits were factored in and accepted by Brussels. For Spain to do this, it would be much more difficult.

For local authorities in both the Balearic and the Canary Islands it could prove difficult to go against the EU’s legal principles of the free movement of people and capital, experts say.

This means that other potential solutions may be needed. Though there doesn’t seem to be a national level ban on foreigners from buying properties in Spain anytime soon, several regions have been attempting to do it for a couple of years, at least for non-residents, and even the national government is beginning to try and do something about it.

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