Recent news highlights measures the Spanish Prime Minister, Pedro Sanchez, is suggesting to ease Spain’s housing crisis. He introduced two proposals to restrict non-EU buyers from purchasing Spanish real estate. On January 13, 2025 Sanchez proposed that non-EU buyers be taxed up to 100% on real estate they purchase in Spain; this would effectively double the price that non EU citizens pay on their property purchases. On January 20, 2025 he went one step further and proposed to ban purchasers from outside the European Union from buying properties.

According to Reuters, “A source close to Sanchez played down the suggestion of a ban, saying the plan remained to discourage these acquisitions through increased tax rates.” Regardless of how it happens, a 100% property tax would halt property purchases by non-EU buyers as no one is going to pay double the market value of a property. This is particularly for investment properties or second homes, which are the bulk of property purchases by non-EU citizens.

A look at the numbers

First, let’s look at the participation of buyers that are EU citizens, and buyers that are not EU citizens, in the Spanish property market. According to Sanchez,

“Non-EU residents represent about 23,000 of the almost 700,000 homes bought and sold every year in Spain.”

This amounts to 3.3% of all property purchases; hardly enough to push Spain into the full blown housing crisis that left wing politicians suggest is happening. According to real estate registry data, Brits – one of the tax’s main targets after Brexit – led the way for foreign property buyers in 2023. They accounted for 9.5% of the total transactions by non-Spaniards.

Buyers from within the EU accounted for a much larger percentage of Spanish property purchases. According to housing ministry figures, the number of Spanish property purchases by foreigners jumps to 19%+ if EU nationals are included.

Where are foreigners purchasing property in Spain?

This is another interesting question that needs to be addressed. Ostensibly, the housing crisis is most acute in Madrid and Barcelona. However, most foreign property purchases occur on the coasts or the islands. According to Barron’s, the share of foreign property purchases jumps to 31.5% in the Balearic Islands, 28.6% in the Canary Islands and 29.2% in the eastern Valencia region.

The rate of foreign property purchases (from both EU and non-EU citizens) was just 6.3% in the Madrid region. In the words of Joan Carles Amaro, a professor at Barcelona-based business school Esade,

“[That] does not represent a significant percentage in the Spanish property market.”

The caveat to this is that some high demand areas in Madrid, such as Salamanca, Charmartín and Centro, see a larger portion of non-EU buyers.

If you are interested in purchasing property in Madrid and would like to learn more of our thoughts on Sanchez’s proposals to restrict non-EU buyers from purchasing Spanish real estate, don’t hesitate to arrange a FREE CONSULTATION TODAY to speak with our Founder, Fabiana Greci.

Why is there a housing crisis?

Spain’s housing market was long characterized by a boom/bust cycle. When market conditions tightened, property developers typically overbuilt. This would lead to a glut in real estate and prices would drop.

In 2008, the crisis was severe. Real estate prices dropped significantly and many builders went bankrupt. There were large property developments; to this day, many of these remain completely vacant. This pushed the country into an economic crisis. The scars run so deep from this that now, new development lags behind demand. Furthermore, as in most developed economies, people tend to migrate from small villages to big cities such as Madrid, Barcelona and Málaga. This creates additional demand for a limited number of properties.

The Aibnb controversy

As in many countries across Europe, and even in New York City, many people are convinced that short term property rentals, such as those found on Airbnb, drive up rents for locals. In late 2023 the City of Madrid, following Barcelona’s lead, bowed to political pressure and announced it would  cease issuing licenses for short term property rentals (less than 28 days).

The truth is, there is not a lot of empirical evidence to support the theory that short term property rentals drive up rents and property prices. The Harvard Business Review did an extensive study in 2019 and found that, on average, a 1% increase in Airbnb listings is causally associated with a 0.018% increase in rental rates and a 0.026% increase in house prices. Moreover, the effect was most pronounced in areas with lower owner occupied occupancy rates (the fraction of properties occupied by the owners themselves). Places with homes that are seasonally vacant were more affected by owners shifting their apartments from long term to short term rentals, thus crowding some locals out of the long term rental market.

If you look at the above price chart of Spanish housing prices, it is interesting to observe the change in prices since Airbnb was introduced in Spain. Airbnb came to Spain in 2009. Although Spain was still in crisis mode in 2009, the introduction of Airbnb did not appear to have caused housing prices to increase. In fact, they continued to contract until 2014. Once housing prices did recover, they did at a slower rate then they did from much of 1987 through early 2008, when there was no Airbnb.

The truth is that although there is some evidence to support that short term rentals drive up rents and property prices, much of the effects are exaggerated. Politicians find it much easier to blame foreigners for problems rather than shoulder their share of the responsibility.

Will these to measures to restrict non EU buyers from purchasing Spanish real estate be implemented?

In short, we do not think so.

In Spain

First, we would like to stress that these measures are just proposals. To become law, the proposals must pass the lower house of Parliament, where Sanchez’s minority government faces a constant struggle to pass any bill. The day after he proposed the 100% tax, his opponents came out swinging against the measure. They consider the proposals to restrict non-EU buyers from purchasing Spanish real estate “xenophobic” and stated they would not apply the real estate tax in the regions they govern. Regions popular with foreign investors, such as the Balearic Islands, Canary Islands and Valencia, are controlled by the PP, Sanchez’s opposing party. Thus they are not likely to impose the tax on non-EU citizens.

In more socialist leaning regions authorities here could be tempted to levy the tax. However, it’s important to point out that Spain relies heavily on foreign property buyers to support its overall economy. Thus the economic backlash from restricting non-EU buyers could outweigh any potential tax revenue earned from the measures. Moreover, The EU has strict regulations against discrimination based on nationality when it comes to economic activities. Taxing non-EU property buyers more than EU buyers could violate these principles, making it legally challenging to enforce Sanchez’s proposed polices.

In Madrid

Aside from needing approval by a fractured parliament, any tax would be applied by Spain’s regional governments- not on a national level. Sanchez’s party does not govern the City of Madrid nor the Autonomous Community of Madrid. Madrid’s regional government, often led by pro-business and pro-investment parties, has historically resisted national policies that could harm its economy.

If enacted, the tax would be applied through a Property Transfer Tax (ITP). The ITP varies across regions, ranging from 6% to 13%. Madrid’s ITP is 6%, the lowest rate in Spain. This illustrates Madrid’s pro-investment attitude. Its leaders are likely to oppose any measures that could jeopardize Madrid’s position as a global investment hub. For these reasons, we do not expect the Community of Madrid to do anything to restrict non-EU buyers from purchasing Spanish real estate.

Potential workarounds

Even if the non-EU resident tax is levied in some regions, there are still ways to purchase property in Spain.

Applies only to non-residents

First, the tax would not be assessed to Spanish residents, even if they are not EU citizens. Thus, if you are able to obtain residency through a digital nomad visa or entrepreneur visa, or are of Spanish or Sephardic origin, you could obtain Spanish residency and purchase a property.

Set up a company to purchase your Spanish property

Another option, which we recommend to our property investors, is to set up a Spanish company to purchase property in Spain. Importantly, the ITP only applies to sales between individuals. If you purchase a property via a Spanish company, you won’t have to pay any ITP levied to non-EU residents.

Conclusion

We do not expect any of the measures floated to restrict non-EU buyers from purchasing Spanish real estate to be enacted, particularly in Madrid. However, if they are, there are still workarounds. Even if you don’t have Spanish residency, you can purchase property via a Spanish company.

Madrid Estate provides a complete range of services to our clients. Don’t hesitate to CONTACT US if you need help finding a lawyer to set up your Spanish SL, or if you need any other help investing in Madrid real estate. We are at your service.