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Restricting Villa and Apartment rentals could Kill the property market in Spain.

Survey Spain- Decline in property marketThe Junta de Andalucía is progressing towards the licencing of domestic property that is being offered to rent. That’s a good thing in that it will upgrade standards. However, if the standards are more exacting than would normally be expected if visiting a friend in their house, then it will greatly reduce the demand for second home property on the Costas, Islands and Inland. Many, many buyers require some form of letting income to be able to pay the annual costs of holding the property, whose main purpose will have been a holiday home for the owner, family and friends. Many also buy when they have a reasonable income, looking to the property as a future retirement full-time residence. It’s becoming expensive to buy (12+% in addition to the price) and expensive to hold (IBI, electricity, water, gardeners, etc are all increasing) so that short term rental is an obvious way to defray the expense.

Since the late 1990’s capital gain was looked upon as a near certainty and that would easily repay all the holding and buying and selling costs. That came to an abrupt end in 2007 and though the fall in prices has slowed or stopped or even bounced a little in the locations most in demand, there is no logical reason for there to be a recurrent boom to take prices back up to former heights. With minimal restrictions on new build, in fact encouragement of it for the licence fees and jobs it creates, the supply will continue to far exceed demand in the best places and thus the ripple out effect of buyers unable to acquire the best and prepared to compromise with slightly less, just won’t happen and prices everywhere will be kept low due to excess of supply over demand.

On the one hand, the Spanish Government wants all the properties sold so that it can have stable banking and building sectors, but on the other they are frightening people away by the demands for disclosure of all foreign assets and now the potentially strict regulation of holiday home rentals. Short term measures that will have long term negative consequences for the country and existing home owners.

These thoughts were instigated by a recent Spanish Property Insight article.