Spain looks to buy to let reform for housing rescue

Lisa Smith, BA (Hons), CeFA
By

Spain is putting out the welcome mat for landlords by reforming rental property laws.

House prices have plunged by up to 40% in recent years and prospective homebuyers cannot raise mortgages from the country’s distressed banks, but still need somewhere to live.

Cities are blighted with empty homes no one can afford to buy and banks are offering bargain discounts to purchasers.

Despite a bank of around 25 million privately-owned homes, Spain has just 1.8 million buy to let properties.

The government sees archaic, one-sided landlord tenant law as one of the brakes on investment in homes to rent.

Proposed new laws give more backing to landlords, giving tenants just 10 days to settle rent arrears before they face eviction.

100% tax breaks for landlords

Landlords can also regain possession of homes on two month’s notice under the new rules, in line with the UK’s assured shorthold tenancy agreements.

Other changes include cutting the tenant’s right to live in a home from five years with an extra three years with the landlord’s agreement. The new term will run for three years with an extra year if the landlord wants to extend the contract.

As extra encouragement for foreign investors, the government is also offering buy to let landlords significant tax relief on rental income – ranging from 60% to 100% if the homes are rented to under 30s who are not picking up rent support from the state.

The new rules will also scrap the current rent laws that peg annual increases to the rate of inflation, instead they will revert to agreements between landlords and tenants.

The government sees the lack of rental homes as damaging to jobs by stopping mobility in the workforce. The jobless cannot move for work without selling their homes and buying a new one.

The Spanish housing crisis offers rich pickings to foreign investors as prices are continuing to slide.

Prices down 8.5% in a year

Properties declined in value again in the second quarter of this year, according to a global residential rental index from international consultants Knight Frank.

The figures shows prices fell by 2.5% between the first and second quarters of this year, and by 8.3% year-on-year. Spain is the fourth worst performing housing market tracked by Knight Frank, with Ireland, Hungary and Greece the only countries performing worse.

However, low prices prompted a 15.6% increase in home sales in the second quarter, compared to the first three months of the year.

Just over 80,000 sales completed in the three months to June 2012, 11.6% below the same period last year, bringing the total number of deals over the last 12 months to 333,562.

Only The Canary Islands and Valencia saw sales increase compared to 2011.

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