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

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Will Spain's Canary Islands limit sale of properties to foreigners?
A view of the coastal town of Puerto de la Cruz in Tenerife, a popular spot for tourists and second-home owners. Image by GarryKillian on Freepik

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?

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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. 

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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.

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“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".

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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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