While private individuals living in Spain are faxing a whole range of tax increases, the Spanish government has announced tax on real estate bought by overseas companies is to be abolished in a bid to attract more large scale investment into the country’s property sector, particularly to the Costa del Sol, Costa Blanca and the major cities.
As of next year companies investing in Spanish property will no longer have to pay the unpopular tax. Private home owners with properties worth EUR 1 million and more provide the government with tax incomes of around EUR 30,000 each every year, a valuable source of income for a country with a troubled economy.
The abolishment of taxes payable by the Spanish version of real estate investment trusts is also part of the government’s plan to stimulate recovery of the property market along with the decision to grant residency permits to non-EU nationals investing at least EUR 160,000 in Spanish real estate.
This latest move aims at large scale investors from overseas who might at last be persuaded to purchase some of the 2 million empty homes still waiting to be sold. A booming rental sector can be expected over the next decade as the country’s rising unemployment prevents domestic buyers from purchasing their own home. Healthy rental yields from both holiday and long term lettings are supposed to tempt foreign investors to return to Spain.
Whole developments in golf resorts or at the seafront are being sold off at ridiculously low prices, as Spanish banks scramble to find buyers and rid themselves off toxic loans and equally toxic properties that so far nobody has shown any interest in.
Not all areas are equally hard hit or suffer from the same problems. The Balearics saw a 30.1% increase of property sales for October 2012, compared to the same month a year earlier but prices still declined despite a lack of available properties for high-end buyers. While in Mallorca and Menorca prices for new properties fell by 13.6% and resale home values dropped by 16.4%, other parts of the country are talking about large scale demolition of whole apartment blocks that are unlikely to ever find a buyer, no matter how low the price.
Marbella’s property prices have also fallen considerably but home values have held considerably better at the Costa del Sol than elsewhere at the Costas. While at the Costa Blanca or at Murcia’s Costa Calida many new homes sell for less than EUR 50,000, in Marbella one should add at least EUR 100,000 to the price tag of a brand new home in a golf or sea front location, but for that price one can expect a luxury property with 2 bedrooms and 2 bathrooms in a sought after residential area in eastern Marbella.
Foreign buyers have shown remarkable resistance to the many bargains among resale homes. Lack of available finance is partly to blame - most bank-owned new property is offered with up to 107% finance, while resale properties are typically sold with traditional 75% loan-to-value mortgages. Many Spanish banks are reducing exposure to any kind of real estate, which means cash buyers are in the best possible position.
Higher personal taxation, like a recent change in the double taxation treaty between Spain and Germany as well as a re-introduction of the wealth tax (impuesto de patrimonio) for example, impact considerably on how well the Spanish property market will perform in the future.
Tax changes may well put off some of the most important private foreign purchasers of holiday homes. Marbella’s real estate market has recently seen a small resurgence as Russian, German, Scandinavian and Chinese buyers are buying Costa del Sol property. However, new legislation in Spain now dictates that world-wide income and wealth must be declared, not just income and property in Spain.
A relaxation of taxation for foreign companies may have started out as a ruse to lure large scale investors to the Spanish property market, but the flip side of the coin is that private buyers from overseas may stay away in droves from the Marbella property market thanks to ill-conceived tax hikes commencing in 2013.