Spain’s Sanchez proposes new law to keep non-EU citizens away from real estate purchases

Facing growing concerns over surging home prices, particularly in Madrid, Spain’s Socialist-led government has proposed measures to limit foreigners from purchasing property in the country.

Prime Minister Pedro Sanchez announced Monday a new tax that would charge foreign buyers the equivalent of the full price of the house they acquire.

The proposal which will be sent to Parliament, will apply to non-EU citizens who don’t have legal residence in Spain.

It may be noted that Spain’s popular Golden Visa programme, that introduced in 2013 to grant residency to non-EU citizens by investing in real estate will end in April 2025. The programme has driven significant foreign investment in the country but has also been criticised for spurring property price hikes and speculation in the housing sector.

Spain also plans to raise taxes on holiday rentals so that they pay “like a business”, Sanchez said on Monday, as residents of the country’s main cities grappled with soaring rents.

“It isn’t fair that those who have three, four or five apartments as short-term rentals pay less tax than hotels or workers,” Sanchez said at an event on affordable housing.

The measure would be based on a new European Union directive on value-added tax for digital platforms, he said. Spanish hotels now pay a reduced 10% VAT rate, which is included in the bill.

Housing has become a major issue in Spain as it struggles to balance promoting tourism, a key driver of its economy with concerns over high rents due to gentrification and landlords shifting to more lucrative, short-term tourist rentals, especially in urban and coastal areas.

In addition, landlords in high-rent areas who keep their rents in line with an official price index will get a 100% exemption for the tax on that income.

Sanchez said the government will promote the construction of social housing and cede 2 million square metres (21.5 million square feet) of residential land to a newly created public housing agency.

However, Sanchez’s minority government faces a constant struggle to pass any bill in a fragmented parliament.

His Socialist Party’s housing proposals have drawn criticism from both the right - which labels them as too interventionist - and hard-left allies, who accuse the centrist Socialists of being too tame with abusive landlords.

“The government’s duty is to prioritise residential use of housing and prevent speculative and touristic uses from expanding in a totally uncontrolled manner at the cost of residents,” Sanchez said.

With inputs from agencies.