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PROPERTY

Five key points about Spain’s new housing law

Spain’s new housing law or Ley de Viviendas finally comes into force from Thursday May 18th, here's what you need to know about how it will affect you.

Five key points about Spain’s new housing law
Spain's new housing law enters into force on May 18th. Photo: falco / Pixabay

Spain’s long-awaited housing reforms, the Ley de Viviendas finally comes into force. The Spanish government is to approve the new law definitively this Wednesday, May 17th without changes, which will prevent it from having to return to Congress, meaning that it will be up and running in time for the regional elections on May 28th.

It will be published in the Official State Gazette (BOE) the next day and come into force from this Thursday, May 18th.

Here are five key points about the law you should know and how they will affect you, whether you rent a property or you’re a landlord.

Regulation of rental prices

One of the most important features of the new law is that it allows communities and town councils to indicate ‘stressed’ market areas in order to establish limitations on rental prices.

For an area to be considered ‘stressed’, it must meet at least one of two requirements. These are areas that exceed the Consumer Price Index (CPI) of their respective province by five points and areas where families dedicate more than 30 percent of their salary to paying the rent.  

In these ‘stressed areas’, the price limitations on leases will be different depending on whether the owner of the apartment is someone who has more than ten homes – a limit that can be reduced to five if the council so wishes – or if they own less than five. Owners of more than five properties will be obliged to lower prices up to a certain limit that will be established by the Ministry of Transport through an index. 

READ ALSO – MAP: The high-demand areas in Spain where rents will be controlled

Rent control index

Up until now, during the first five years of the rental contract, the landlord had the right to increase the price each year by the same percentage as the CPI, but the new law will also establish a new index that will replace inflation when it comes to limiting the annual increase for rental payments from 2025 onwards.  

In 2022, faced with relentless inflation, the Spanish government approved a law to prevent annual rent increases in line with the CPI during 2022. In doing so, they set a two percent ceiling on increases, which the Spanish Cabinet then subsequently extended and will remain in force throughout 2023.  

In 2024, a ceiling of three percent will apply, whatever the level of inflation. Landlords may not raise the price of their contracts already in force above these percentages.  

READ ALSO: What Spain’s new housing law means for you if you’re a landlord

Agency fees

Anyone who has ever rented an apartment will be aware of agency fees and what an extra financial burden and worry they can be. In Spain, agency fees are usually equal to one month’s rent, sometimes more, and fortunately for renters the new law shifts the onus to pay fees onto owners, not the tenants.

In addition, the law also prohibits increases to fees beyond what is advertised or in the contract, such as forcing tenants to pay expenses for ‘la comunidad‘ community or municipal fees.

READ ALSO: How Spain’s new housing law will affect you if you rent

Tax penalties for empty apartments

The new housing law will offer municipalities the possibility of financially penalising those who keep their properties empty or unoccupied in order to encourage them to go on the market.

This penalty will be levied through a surcharge on the Real Estate Tax (IBI) of up to 150 percent. A property will be considered “permanently unoccupied” when it remains empty “continuously and without justified cause for a period of more than two years”, provided that its owner has four or more houses. 

If the property has been empty for two years, the IBI surcharge may be up to 50 percent or “up to 100 percent of the net tax rate when the vacancy period is greater than three years,” the law states. City councils may increase the surcharges for landlords who own two or more empty properties in the same municipality.

Tax incentives

This is the only part of the law that will not enter into force this from May 18th, but will instead do will do so as of January 1st, 2024. The current system of tax incentives will remain in force throughout the rest of this year.

From 2024 onwards landlords may be able to benefit from the new housing law through several tax incentives. Currently, landlords can deduct 60 percent of the amount they charge the tenant from their personal income tax payment, but this will be reduced to 50 percent in areas that are considered to be ‘stressed’.   

However, depending on the rental prices that landlords in ‘stressed’ areas charge, these deductions can almost double. The tax deductions can go up to 90 percent if the owner lowers the rental price by at least five percent compared to the previous contract; and up to 70 percent if a new home is put on the market and rented to a young person between the ages of 18 and 35 or if it is rented to the public administration.

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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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