Spain’s real estate market is experiencing a huge boom. Property prices rose by an average of 9% in the first nine months of the year, according to House price index from the INE statistics agency,
Average prices have doubled over the past decade, marking a very welcome improvement after the banking and real estate collapse during the financial crisis of 2008/9. The recession was fueled by years of over-construction and property speculation, ultimately forcing Spain to ask for a €100 billion ($103 billion) bailout from the European Union to stabilize its banking sector.
The current surge in house prices and rents has reignited concerns about housing affordability. A Reported last July by real estate platform Idealista It turned out that rents in Madrid and Barcelona rose by 25% and 33% respectively in the last five years.
The issue has become politically charged, leading to public unrest and mass protests in Spain’s major cities.
In response, Prime Minister Pedro Sánchez has proposed a controversial measure: a 100% tax on property purchases by non-EU citizens without residence in Spain. Sanchez argues that this policy will prevent speculation in the real estate market.
Where are the speculators?
However, critics have questioned whether the measure will address Spain’s housing shortage or improve affordability for locals as speculators make up a small portion of buyers.
“There are no speculators in the Spanish property market,” says Mark Stucklin, who runs the Spanish Property Insight website. Citing high transaction costs, red tape and other obstacles facing property buyers, Stuecklin told DW: “You can’t make money on property in Spain – it’s a mug’s game.”
Costs are typically 10-15% of the purchase price, while capital gains tax of up to 24% is payable on any profit made when selling the house. Spain is also notorious for outdated planning records, with many properties unregistered and few owners. Making illegal modifications to their homes – issues that give rise to complex legal disputes that can take years to resolve.
Foreign buyers have helped push up prices
While speculators may be absent in large numbers, demand for Spanish property among foreigners has risen sharply since the COVID-19 pandemic, according to a report from Caixa Bank, Spain’s third-largest lender.
Almost a fifth of homes sold in the 12 months to the end of the third quarter of 2024 were bought by foreigners – a total of 125,857 properties, the report said, citing data from the Ministry of Housing and Urban Agenda (MIVAU).
“There is no doubt that foreign demand is a fundamental pillar in explaining the strength of housing demand,” said Judit Monteriole Garriga, chief economist at Caixa Bank. “Much of this demand comes from foreigners living in Spain – a group that has been growing with the influx of immigrants to our country in recent years.”
Montario Garriga said non-resident foreigners – including British, German, Dutch, Belgian and French citizens – tend to buy holiday homes in tourist areas along the Mediterranean coast and on the Canary or Balearic islands. In contrast, resident foreigners shop primarily in urban areas.
Along with the capitals Madrid and Barcelona, coastal cities such as Valencia and Alicante have rapidly growing populations and limited property availability, so their housing stock is “under great pressure”, Stuchlin said. He said rent controls introduced in Barcelona last March “helped stabilize prices but supply has fallen.”
Tourist rentals mean fewer homes for locals
Rents have also increased from short-term contracts offered primarily to tourists, through home-rental platforms such as Airbnb – a record 94 million of whom holidayed in Spain last year. Many areas have banned short-term rentals. The island of Mallorca has threatened to impose a fine of €80,000 on anyone illegally renting a property for tourist purposes.
While Sanchez believes taxing speculators from outside the EU is the answer to the affordability issue, his plan would not prevent EU citizens and companies from shopping in Spain.
The opposition conservative Popular Party (PP) wants to reduce the tax burden on property sales and help buyers under 40 access 100% mortgages. The party recently said it would also free up land for new affordable housing in the areas most in demand.
How do other countries determine foreign buyers?
As of now, Sri Lanka is considered to be the only country to impose 100% tax on foreign property ownership. This levy effectively ended foreign interests in the Indian Ocean island and was repealed a decade ago.
Other countries have imposed less punitive measures. For example, Singapore charges foreign buyers an extra 15% tax, which was raised to 60% for some types of property last year. It currently has the highest tax on foreign property ownership in the world.
Hong Kong imposes an additional 15% stamp duty on foreign buyers, while two Canadian provinces impose an additional 20-25% tax on non-residents purchasing residential property.
Switzerland has an annual quota on how many homes can be sold to foreign non-residents. Before purchasing in Denmark, foreigners need government approval, which is usually granted only for properties intended for primary residences or business purposes.
“The days of making a quick buck from speculative property purchases are gone due to the regulations and restrictions imposed in many of these markets,” said Kate Everett-Allen, head of European residential research at the London-based real estate consultancy. Knight Frank told DW.
With many governments facing high public debt, foreign asset owners were likely to be targeted by other countries going forward. “Governments are trying to attract investment, maintain economic growth and ensure that housing does not fall out of reach of their local populations,” Everett-Allen said.
On the positive side, he added, these measures mean that many countries are “less likely to fall into the boom and bust cycles that were evident before the financial crisis.”
Edited by: Uwe Hessler
