Real estate purchase over for non-residents?
Foreigners are no longer allowed to buy in Mallorca? No real estate, neither a house nor an apartment? Admittedly, that’s a bit provocative. But if it goes according to yesterday’s vote in the Parliament of Mallorca, in the future only people who have been resident on the island for at least 5 years can buy real estate. The residency here is called residence. And doesn’t mean you have to be Spanish to buy, it basically means you have to have your primary residence on the island.
What about the EU?
There are critics who believe that such a regulation would not be compatible with European law. I don’t think there would actually be a conflict here. Of course, first of all, the government would have to submit a corresponding law to parliament in the first place. Which would then need to be reviewed and adopted. But as long as EU citizens from different countries are not treated differently, it can be roughly assumed that there is no discrimination. And since every EU citizen would be free to settle in Mallorca as a resident, this restriction would be quite possible from my point of view.
If it is to continue to be possible for companies to buy real estate, then a foreign European company should not be treated any worse than a domestic European company. And actually it should not be relevant whether the shareholders, i.e. the owners of the company, are nationals or EU foreigners. This would then also put the presumed first circumvention strategy of a possible law within reach. Or, in the case of more extensive regulation of a discriminatory nature, a possible violation of European law.
The Parliament has no legislative function. It can only vote on bills that are usually submitted by the governing coalition. Basically, it is largely powerless on its own. But nevertheless it is composed of deputies from different parties and of course there is a signal effect on the government, especially since the new elections are less than half a year away.
On the initiative of the oppositional regional party El Pi, the debate was brought about in parliament. And unlike the last attempt in July, in which the Island Council in rare unity of conservatives and left-wing government blocked a similar move by the left-wing party Podemos, this time it was just successful.
What does this mean in terms of content?
First of all, it is to be understood only like a party-political order to the own representatives in the government of the Balearic Islands. Which, of course, would have to coordinate with central government and other entities involved. But it is, in my view, now a very clear statement of the will of the people’s representatives, who can hardly ignore their own party colleagues completely. Especially not before the elections.
Why is this being done?
There has long been a major problem with affordable housing for locals. Comparable to any location in high demand, it has become almost impossible to find a rental apartment under 800 euros here at all in recent years. However, this is at an income level that is far below Munich. Likewise, as is the case in many parts of Europe, it is hardly possible for normal earners to build up real estate ownership through gainful employment. Against these abuses has already been dramatically restricted vacation rentals for years. Then rent brakes were installed. Most of which did not work across Europe. And now this kind of sales stop is to follow as the next non-effective measure …
Why does this not work?
Relatively simple. When demand is greater than supply, prices rise. Now it is actually a widespread ideology among left-wing and right-wing ideologues that you only have to ban enough to not have to get creative yourself.
This has already gone thoroughly wrong in the vacation rental and rent control examples cited above. But what’s so bad about sales restrictions? Wouldn’t that move prices down?
Yes, it would indeed. Suddenly, demand would collapse. Until then at the favorable price investors would collect the objects. Presumably behind nested corporate structures. With a Spanish company in the front. If the government should not succeed in effectively preventing this in a possible bill, this would be the first point where a law would simply be undermined or, as already mentioned, would possibly not be in conformity with European law.
These villas, which have been built since about the 80’s, especially in the southwest or also in Son Vida, have always been designed as luxury products in their respective times. They were never part of the normal housing market. But were developed as new residential areas by Mallorcans who owned huge tracts of land there. A nice article has just appeared in the Mallorca newspaper about Santa Ponça, describing in passing how the Nigorra family planned and built this place. And today we see already the third generation of buildings on the same plots. So it is simply being demolished. And newly built. Is that sustainable? Not really. Does it narrow the rental housing market for residents? Surely not.
But is there, of course, a problem with affordable housing in the attractive cities? Yes, that is absolutely the case. Of course, prices have shot up in Palma as well. To be fair, though, this is a phenomenon we’ve seen in capitals across Europe. And that was simply created by the unrestrained printing of money and the low interest rate policy.
If we want to counteract this, I think it would only work by reallocating certain areas or types of real estate in terms of their use. Of course, that could include resident-only use. And I guess to be legally secure, there would have to be grandfathering. But then it would also have to be considered whether residents should continue to be allowed to put their owner-occupied property up for vacation rental. In my opinion, this has massively encouraged illegal vacation rentals and has actually just not helped to ease the housing market. And ideally, we counteract this with new construction. After all, there was already a shortage of living space ten years ago. And the incumbent government has not fulfilled its election promises to create housing.
Mallorca can’t afford that …
The people who would have liked to buy in Mallorca would then rent. So rents would continue to rise. Maybe not in the normal segment, but at least in the luxury segment. Other customers would go to other locations. Because Mallorca is fantastic. But when the disadvantages of the product get out of hand due to an excessive regulatory frenzy that does not achieve its goals, more and more customers turn away. After all, the package must remain attractive.
In addition, I would also like to mention the revenue side. The real estate transfer tax here has been 8-11.5% so far, and probably 13% at its peak starting next year. This is, in my opinion, the main source of income for the Balearic Islands. With every real estate transaction, the island government opens its pockets wide. In a way that is foreign to us even in Germany. These revenues would, of course, be massively reduced. And also the construction activities, which in the meantime massively increase and consist of conversions of already existing objects, would be reduced. With the whole chain reaction that would follow.
Who does it better?
It hurts me to bring that across my lips. But honestly, the northern Tyroleans do it better. They call themselves Tyroleans, a bit of a label swindler. They have devised a so-called recreational residence designation, which relatively few houses or apartments have. And only there may live a person who does not have his first residence. Did that work? No, it actually only caused legal uncertainty and most southern Germans, if they could afford it, still threw themselves into the madness of property without legal security. And the business-minded North Tyrolean usually ignores his neighbors who are absent for 11 months, because he knows that this is how the region’s income is generated. But how have Austrians managed to solve the problem of affordable housing?
They have designated construction areas created for people and families working in the region. There, building land prices are affordable and the buyer has to live with a corresponding earmarking for decades. Did that solve the problem? Certainly not complete, but it is a good concept. Because it creates forward solutions. And not simply forbid.
But what is the solution?
To solve the housing shortage, there is only one sensible answer: build! This is as simple as has not been done significantly. And that runs through pretty much all governments. Housing packages are promised, social housing is announced.
This housing would have to be purpose-built. Not only social construction, but simply good residential areas, which due to the affordable land, are affordable also for the ownership of the residents. Not only for rental.
But as long as governments persist in dull inaction, they must then adopt populist measures that everyone knows will not achieve their goal.