Rental Ready in Spain
"Overall I’m in favour of the tighter rules. The consumer should get a better product as sub-standard properties and landlords are weeded out and higher standards are enforced."
Spain’s central government devolved responsibility for short term tourist rental legislation to the autonomous regions in 2013. Many of the regions that attract the majority of overseas visitors already had some controls in place. Whether it was being rigidly enforced is another matter. At the time Andalucía was the only remaining region with a big tourist rental market without legislation. However, that was rectified in May 2016 when Decree 28/2016 came into force.
Property owners who let to tourists on holiday can achieve significant income. The market is huge. Spain is the 2nd most visited country in the world and broke the 80m barrier for the first time in 2017. The highest annual figure ever recorded, 83.7m, was in 2019, just before the pandemic arrived. Of these, the Ministry of Tourism estimates that about 35% don’t stay in hotels.
Several factors were involved in this move to legislate. Firstly, Spain’s very powerful hotel lobby had been calling for stricter control of the private rental sector for years. They claimed to be arguing for a level playing field. However, I suspect the demands were driven by the lack of competitiveness that still pervades much of the Spanish economy. The thinking seemed to be that if it was made harder for property owners to rent more visitors would stay in an hotel. I doubt it. Apart from the fact that many hotels could stand improvement I see little crossover between the two sectors. If a customer can’t find what they are looking for in Spain they are more likely to switch to a private rental in France, Italy or Portugal than head for a Spanish hotel.
Then there was the opportunity to increase tax revenue. Before the requirement for short term rentals to be licensed no one had a clue who was renting what to whom and for how much. As a result, an unknown amount of money was out of reach of the Spanish tax authorities. There was no declared income to tax. Spain’s Finance Ministry had estimated total undeclared revenue from rentals of private homes is in excess of €4 billion.
Now all that has changed and you can be sure the information will be shared. In 2015, the Spanish newspaper El País ran a story that indicated serious intent to crackdown on undeclared rental income. It reported people making their tax declaration online were seeing a pop-up message saying: “According to data in the Tax Agency’s power, you have placed property rental ads in various media, including the internet”.
Legislation also brought the opportunity to raise standards. The list included minimum requirements and responsibilities, with fines or exclusion for non-compliance or, at worst, a total ban. For example, in the Canary Islands holiday apartment lets are allowed only with permission from the community of owners. In certain designated ‘touristic’ locations there is a total ban. Several regions prohibit single room occupancy while in Cantabria owners must show they have taken out public liability insurance even before they apply for the registration license. The requirements vary from region to region so it is essential to find out what applies in that location.
Fines range from €2,000 to €150,000 in Andalucía and from €30,000 to €300,000 in the Canary Islands. One repeat offender in Barcelona has been whacked with a €70,000 fine. In the first year of operation for Andalucía’s new system over 20,000 applied for a license. However, it is estimated about 80,000 properties are let out in the tourist market so there is away to go. Owners whose properties fail inspection either have to rectify the problems or stop renting. If they do neither they can be removed from the register and fined. Overall I’m in favour of the tighter rules. The consumer should get a better product as sub-standard properties and landlords will be weeded out. As a result, the whole sector will be more professional. In reality, most owners who were already renting Spanish property were doing what is now required by law. Why should others get away with below par offerings and tax avoidance.
But one area where they are big changes is in the city centres. Here there is growing animosity between residents and short term tourists. Online platforms such as Airbnb and Homeaway are largely responsible for the growth in tourist rentals. In many localities rapid and often unwanted changes have occurred. A big problem is a reduction in the availability of long term rental property because landlords can’t resist the more profitable short term tourist market. Inevitably prices have risen and long term supply has diminished. Another is the take over of entire buildings, to the extent that few or no residents live there. It’s unavoidable but when every apartment is for tourists the neighbourhood and environment changes. People living in adjacent buildings in what used to be quiet residential streets complain of parties through the night and constant noise and disruption.
Fighting back, the Barcelona town hall fined both Airbnb and Homeaway €600,000 for list ing unlicensed properties. Both companies had been fined before, Homeaway paid up but Airbnb did not so they fined another €600,000. It was estimated about 60% of properties listed on the portals were still unlicensed. However, in August 2017 Airbnb succumbed to pressure and removed 1,000 unlicensed properties from the platform. Subsequently, in December 2019 Airbnb lost its appeal against the Catalan government and as a result, a further 12,000 properties were at risk of removal from the portal due to not having a licence. The majority are in Barcelona city itself.
Tenancies of more than two months to the same person come under standard Spanish tenancy law. But if you are renting Spanish property for shorter periods then you must apply for a rental licence. In most cases this is free although some municipalities make a charge, for example, in Mallorca the cost relates to the number of beds. The licence number must appear on all marketing, such as web pages, leaflets, flyers for example. In addition, your property must comply with the local standards. There is more administration. In effect, owners have to behave more like hotels, checking passports and forwarding copies to the local police within 24 hours for example. However, gross yields from 8% upwards for quality properties in the most prime locations are achievable. As a result, many property owners in Spain still see the short term rental market as very attractive. However, I think it is safe to assume that there will be more controls in future but that is not necessarily a bad thing.
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