Will They? Won't They?

The overseas property market in Spain recently made headlines in the media worldwide with two announcements affecting those who are not citizens of an EU country. Although we already knew Spain’s Golden Visa scheme was coming to an end, we didn’t know the exact date. Then, on January 3rd, the clock started running down to April 3rd, meaning that anyone in a position to make an application prior to midnight on April 2nd would qualify. After that date, no new visas will be issued, but existing visas will be valid as long as the asset that qualified the visa holder is held. 

None of this came as a shock as we knew it was in the pipeline. However, what was completely unexpected was the announcement on January 13th that Pedro Sánchez’s government was considering a 100% property tax on non-EU buyers. Not satisfied with that, he went further on January 19th, talking about an outright ban of all non-EU, non-resident property purchasers in Spain. I think it’s worth pointing out that this suggestion was made at a rally of his PSOE supporters and that his minority government relies in part on hard-left coalition partners Sumar, with their communist leader Yolanda Díaz, to maintain his grip on the Presidency. Because of this, I’ve been wondering if there’s a possibility this announcement had more to do with political posturing than reality.  Maybe it’s time for a reality check.

The reality is that overseas buyers helped the Spanish property market get off its knees in the post-2008 period with numbers growing from 2011 onwards, but according to Pedro Sánchez, all non-resident foreign buyers are ‘speculators’. What an insult. The reality is that during the same period, the domestic sector was still in steep decline, not hitting bottom until 2014. And even today, the reality is the domestic market is still well below its 2007 peak, about 30% smaller than back then, but over the same period the overseas sector has more than doubled, up 127%.

I realise that last statistic could be used as proof that Sánchez is right, the lack of affordable housing is the fault of those pesky, speculative foreigners. However, you only have to look at where all these undesirables buy and how much they spend to realise this is nonsense. The reality is the overseas and domestic sectors of Spain’s property market have always operated pretty much independently of each other and don’t directly compete for the same properties. 

Only five of Spain’s seventeen autonomous regions have Mediterranean coastlines: Cataluña, the Comunidad Valenciana, Murcia, Andalucía, and the Balearic Islands, but they dominate the overseas sector. The statistics show approximately 75% of all foreign buyers buy in one of those regions, and if the Canary Islands are added to the mix, that rises to 80%. The average spend of foreign buyers is also relevant and is another clear indicator that overseas buyers are not taking properties away from Spaniards. Currently, Spaniards spend an average of €1,650 per square metre, while the average for non-resident overseas buyers is €2,900 per square metre, 75% higher, because they’re buying different properties in different locations.

And focusing just on non-EU, non-resident buyers isn’t going to help much either, as the split between resident and non-resident buyers has changed in recent years, and today resident foreign buyers are the majority, 57% against 43%.  Even the British are not far short of a 50/50 split. Just before the 2008 market meltdown, 80% of British buyers were non-resident, and 20% resident, but today the split is 60/40, and I predict it’s heading for 50/50. Buyers from the US have been increasing in the last five years, and, although a much smaller market, the split between resident and non-residents is already roughly 50/50.

There’s no doubt there is a shortage of affordable housing in some regions, both to rent and buy, but I don’t think it has much to do with overseas buyers. In my view, it’s more to do with the ludicrous over-building in Spain between the late 1990s and the crash in 2008 when licenses for 800,000 units were approved for several years running, more than the U.K., Germany, and France combined. Even as it was clear the market was slowing, Spain was still completing more than 600,000 units per year. Today, that figure is a paltry 90,000, but recent reports from a range of analysts, including the Bank of Spain, suggest that 250,000 new households have been formed annually for the past several years, and the trend is upwards.

The reality is that the 2008 crash destroyed about 95% of Spain’s construction sector, and that is having much more impact on the housing shortage now than a few thousand non-resident foreign buyers from outside the EU. The reality is that Spain was very slow to rescue the banking sector, which was drowning in toxic debts. Whereas Ireland, in a very similar position to Spain, established their ‘bad’ bank in 2011, Spain was still in denial. It took another two years for Spain to realise they were in a great big hole, and it was way past time to stop digging. Spain's 'bad' bank SAREB  was established and became operational at the end of 2013 by which time Spain needed a €100 billion credit line from the European Central Bank just to prevent the collapse of the banking sector. And the reality is that there are still tens of thousands of affordable properties in SAREB’s portfolio, ready to move into, but the problem is no one wants to live where they are. 

In fact, if Sánchez insists on pinning the blame on foreigners, I suggest he looks to the low-spending nationalities who are overwhelmingly resident, economic migrants who have come to Spain to work. For example, about 98% of non-EU Moroccans are resident in Spain, so they would be exempt from the restrictions he’s suggesting. However, their average spend is only €685 per square metre, less than half that of Spanish buyers. If you take an average spend per square metre of the four lowest spending non-EU nationalities, i.e., the Moroccans plus Venezuelans, (97% resident), Colombians, (92% resident), and Ecuadorians (95% resident), at €1,185 pm², it is still well below the per square metre price of the average Spanish buyer. This would seem to suggest that it is the low-spending resident foreign buyers who are making it difficult for Spaniards with modest budgets in the major cities and towns, not the high-spending Swedes, Americans, Germans, and Brits in the Balearics and Canary Islands and on the Mediterranean coasts. 

Do I think these threats will find their way into law? I may be wrong but I really think any meaningful changes are a long way off, if ever and if you are planning to buy property in Spain in 2025  and are a non-EU citizen my advice is to Keep Calm and Carry On. Oh, and perhaps investigate if you are eligible for an EU passport thanks to where a grandparent or even a great grandparent was born. 

The reality is that Spain has to get building again, and in the right places,  to have any chance of closing the gap between supply and demand.

For more background see this article in The Sunday Times and our Market Report and recent Blog.