Spanish real estate attracting foreign investment

Spain plans to offer residency permits to foreigners who buy properties priced at more than 160,000 euros as part of its efforts to revive the real estate market and rid itself of hundreds of thousands of unsold properties.

At the recent announcement of this proposal, the Spanish trade secretary, Jaime García-Legaz, said it was aimed in particular at Chinese and Russian investors who might face difficulties buying a property in Spain because they are not residents of the European Union and thus do not benefit from the free movement across borders that many buyers of Spanish property currently enjoy.

It was noted that Spain was following in the footsteps of Ireland and Portugal, two other ailing euro zone economies that have sought to spur their property markets by easing residency requirements.

Spain normally grants visas that are valid for up to 90 days to citizens of countries that are outside the European Union. The residency permits for foreign property buyers would be for a much longer period of time but, it should be noted, they would not be open-ended. The full length of the permit has yet to be decided. The permits would also not grant the buyer the right to work in Spain. Realistically it looks like the proposal is aimed at further broadening the appeal of holiday homes in Spain to a more global market.

In regards to this proposal, the Spanish prime minister, Mariano Rajoy, told reporters that while no final decision had been made, it was important for Spain to reduce its stock of unsold homes — “and not at the disproportional valuations of previous years.”

According to government data, there are about 700,000 unsold homes (or up to 900,000 unsold properties) on the market as a result of a property boom that burst in 2008, damaging one of the main engines of the economy, the construction industry and severely affecting many Spanish banks (Bankia being an example in the press recently).

Attracting more foreign buyers will only have limited impact of the real estate market, but the benefits to the secondary (holiday) home market could be profound. Although I do not believe that many of these unsold new builds will be of interest to foreign buyers, many areas including the province of Malaga (home of Benalmadena, Mijas, Fuengirola, Marbella and Benahavis) should benefit by attracting many who want a vacation home in a well developed tourist area with a well regarded infrastructure and services.

Last year, property purchases by foreigners rose 6 percent from the previous year. Purchases by Russians soared nearly 28 percent, to 1,757 units. Chinese buyers acquired 868 homes last year, up 7 percent from the previous year but only 4 percent of the total. Neither game changing figures, but the figure is set to increase and all foreign investment is good investment.

What we now need is for Spain to improve its brand image by strengthening the real estate laws that, as we saw after the bubble collapsed, had not been enforced and allowed regional and local authorities to approve construction of houses that violated environmental laws or other regulations. Not that it was as excessive as people believe, but it did damage Spain’s image both on a national level and particularly to many potential foreign buyers.

Andrew Belles

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