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EXPLAINED: The plans to limit foreign property buyers in Spain’s Balearics

The Balearic government has agreed to debate whether limiting the number of properties that can be bought by non-resident foreigners would benefit the archipelago. Here's what we know so far.

balearic islands limit foreign property buyers
A man takes a photo of Ibiza town. The Balearic Tourism Minister believes that at the current rate the islands risk becoming “the second residence of Europe". Photo: Go to Ferran Feixas's profile Ferran Feixas/Unsplash

The Balearic Islands government is proposing limits on the number of properties that can be bought by non-resident foreigners on the popular islands of Mallorca, Menorca, Ibiza and Formentera.

In the regional parliament on Wednesday, Minister for Labour, Tourism and Industry Iago Negueruela pushed the motion, calling for a “deep debate” on how to limit the purchase of homes on the Balearic Islands to non-residents and people who have been living in the archipelago for less than five years.

The Balearics, long a holiday getaway for wealthy Northern Europeans, has seen a boom in the number of second homes bought by non-resident foreigners in recent years.

The regional parliament has approved a motion to introduce limits, part of a broader initiative to curb overpopulation and property saturation on the islands.

It is yet to outline a concrete policy on how exactly these property purchase limits would be enforced by law.

Foreign buyers

So why would the government want to bring down the number of foreign buyers on the Balearics?

In the two decades from 2000-2020, the islands’ population total has grown by 50 percent – rising from 823,000 to 1,223,000 inhabitants.

Around a third (32.67 percent) of property purchases in the Balearics are made by foreigners, and of those 57.4 percent are residents, while the remaining 42.6 percent are non-residents.

This growth has placed great stress on the housing sector, and the boom in foreigners looking to buy property on the island in recent years has made housing far less accessible for locals. “The Balearic Islands,” Negueruela said, “can’t be a theme park where the people of our islands don’t have a place.”

The Balearic government has pointed to examples of similar housing protections around Europe – in particular Finland, Denmark and Malta – that limit the number of properties sold to non-residents to help regulate the market and protect the purchasing power of local residents.

Negueruela has said that if nothing is done, and the policies of former regional president Gabriel Cañellas are followed, the islands will become “the second residence of Europe.”

Opposition

The proposals have met some opposition, however. The Balearics, which generates 35 percent of its GDP from tourism, according to figures from Caixa Bank, has long been a holiday or second-home hub for wealthy foreigners.

On this point, right-wing Popular Party member Sebastià Sagreras suggested in the regional parliament that conflating the foreign-buyer property market with local shortages is unhelpful, adding that the properties bought by foreigners, often worth more than a million euros, “do not compete” with those that cost €200,000 or €250,000 and are largely bought or rented by national residents.

Unsurprisingly, estate agents are opposed to the proposed changes as well. The real estate market makes up a sizeable proportion of the Balearic’s GDP, and they argue that interference in the free market would lead to an increase in unemployment and a fall in tax revenue on property transfers, one of the taxes that draws in the most to the public coffers.

The International Balearic and Real Estate Association, ABINI, have even cast doubt on the legality of the motion, suggesting the Balearic parliament is moving ahead with the proposals “without legal validity, nor real effects on the limitation of the sale of real estate to foreigners. This limitation violates national and European regulations, and will generate more confusion than solutions.”

Change of model

The proposals come amid broader attempts at reconfiguring the Balearics’ tourism model, hoping for a move away from being so dependent on monied foreigners towards a more sustainable model.

The Parliament has already supported a policy to limit the entry of rental cars in Mallorca, Menorca and Ibiza, a measure that has been enforced in Formentera for the last four years. During the summer months, the Balearic Islands welcomes not only thousands of tourists but cars, especially rental cars, which congest the road networks and damage natural environments such as the archipelago’s many beaches and coves.

Furthermore, the port of Palma de Mallorca has limited the number of cruise ships that can dock there – capping the maximum at three per day can, of which only one can exceed 5,000 passengers.

Plans to decrease the number of hotel rooms on the Balearics have also been green lit by the government. A total of 625,000 hotel places are currently available across the islands. To put that in perspective, the Balearics have 1.2 million residents, meaning there is roughly one hotel bed for every two inhabitants on the Balearic Islands.

The hope is to get rid of around 40,000 of them, mainly in smaller, cheaper hotels popular in the ‘booze’ tourism trade.

Given the Balearic government’s already proactive approach to creating a more sustainable tourism model, and the fact that it’s the islands’ tourism minister that’s pushing for this latest measure, there is a high chance that budding second-home owners in Mallorca, Menorca, Ibiza and Formentera could soon face restrictions.

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PROPERTY

Will Spain’s Canary Islands limit sale of properties to foreigners?

There are calls in Spain’s Canary Islands to limit the purchase of properties by non-residents and foreigners, but could authorities legally do this and what are other potential solutions to the archipelago's housing problem?

Will Spain's Canary Islands limit sale of properties to foreigners?

Canary nationalist political party Nueva Canarias wants the regional government to address the large number of property purchases by non-residents in the archipelago, and to an extent limit the number of properties that can be bought by foreigners in the popular holiday islands. 

This comes after Spain’s other archipelago, the Balearic Islands, also started this same debate in November 2022, with the regional Senate agreeing to discuss solutions.

READ ALSO: The plans to limit foreign property buyers in Spain’s Balearics

The Canary Islands are in the midst of a housing crisis, with high rents, a shortage of properties, and an increase in holiday homes.

The main islands of Tenerife and Gran Canaria also suffer from overpopulation.

With an area of 7,447 km2, the archipelago is one of the smallest regions in terms of landmass, but its 2.2 million inhabitants rank it seventh in terms of regional populations in Spain, and in practice this means there’s less space on which to build homes.

In fact, the Canaries have one the highest population densities in Spain and Europe with 302 people per km2. Gran Canaria, where the most populous city of Las Palmas lies, is higher still: 548,41 inhabitants per km2.

“We have a very serious residential problem that can get worse,” said the Nueva Canarias party spokesman Luis Campos, who wants to limit the number of foreigners who can buy property on the islands. 

“If their properties are rented out, it shouldn’t have a negative effect. It could even improve the housing stock in this sense… But another thing would be to buy a flat in a popular neighbourhood and renovate it with the intention of obtaining very high rents from the lease. This can lead to processes of social change and gentrification”, explained Campos.

“Another scenario would be that foreigners buy a home in order to rent it out on Airbnb or for their own seasonal use. In these cases, it would reduce the amount of available housing on the islands,” he added.

In the third quarter of 2022, 33.69 percent of homes in the Canary Islands were purchased by foreigners according to data from Spain’s College of Property Registrars.

This is the highest proportion in Spain, ahead of the Balearic Islands at 31.46 percent and well above the average in the whole of Spain at 15.92 percent.

Buying property in the Canary Islands is seen as a good investment asset for many foreigners due to the relatively lower cost, mild year-round weather, beautiful surroundings, and strong tourist industry.

canary islands limit property purchases foreigners

Las Palmas de Gran Canaria is the archipelago’s most populous city with 378,000 inhabitants. Photo: slavikfi/Pixabay

What these stats don’t tell us, however, is if most of these purchases are by foreign residents or non-residents.

Experts believe there are clues that point to the fact that many non-residents are buying homes, such as the high percentages of mini 40m2 apartments being sold and the high concentration of second homes located in municipalities with the most tourists.

Alejandro Armas, a Tenerife geographer at the University of Leipzig, told El Diario that there should be no difference in whether the houses belong to foreigners or not. For him, the key lies in what the properties are used for, whether they’re being rented out to the local population or only used as tourist rentals.  

So far, it’s not exactly clear what the Nuevas Canarias party wants the exact rules to be, but they have cited examples of the Balearic Islands where they have asked that the rules “prevent second residences from eating up primary residences”.

Is it possible to restrict the number of foreigners buying homes?  

Denmark, Malta and the Aland Islands in Finland all have restrictions on how non-resident foreigners can buy properties in their territories. However, they introduced these before entering the EU and these limits were factored in and accepted by Brussels.

For local authorities in both the Balearic and the Canary Islands it could prove difficult to go against the EU’s legal principles of the free movement of people and capital, experts say.

This means that other potential solutions may be needed. 

Many agree that there are several solutions to the problem that don’t actually involve introducing purchasing limits for foreigners.  

One potential solution would be to increase taxes. The Spanish government is already seeking to amend the wealth tax laws and wants to introduce a new tax for high-net-worth individuals.

This means that non-resident taxpayers whose Spanish real estate assets are worth more than €3 million would have to pay an extra tax.

It is believed that this would deter the highest earners from buying up luxury properties on the islands. The average sale price per square metre in the Canary Islands is higher among non-resident foreigners (€2,522) than among residents (€1,622) and nationals (€1,560), according to the latest figures from Spain’s General Council of Notaries.

Another solution is to follow a measure similar to what has been done in Barcelona to make it very difficult to buy properties to rent out on Airbnb. In the Catalan capital, it’s illegal to rent out your property to tourists on a short-term basis if you don’t have a tourist licence and the City Council is no longer issuing these.  

There are also policies in other countries that serve as examples, such as Ontario in Canada which has added a 15 percent tax for non-residents on to the sale of any home in Toronto and the surrounding area. While in New Zealand, they have also prevented non-resident foreigners from buying real estate from the existing housing stock.  

It’s worth keeping in mind though that a study carried out by American economists found that these last two models did not ultimately lead to a decrease in the number of foreign property owners. 

It remains to be seen what the outcome of the Canary Islands’ study on foreign property owners will be and ultimately what solution they decide upon. 

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