If a year ago the Balearic Islands marked the path of the temporary expropriation of homes belonging to large owners to allocate them to social rental, the archipelago is once again putting on the table another proposal that has generated a new debate between public administrations and the sectors involved: the limitation of the purchase of second homes by foreigners in an Autonomous Community that registers the highest price increases in the sale of real estate and where more years of salary are required to be able to face the purchase of a home.
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Given the growing escalation in housing prices on the islands (with an increase of 9.6% during 2021, the highest rate in the country, according to the National Institute of Statistics) and the problems that the archipelago has been dragging for decades in this matter -scarcity of land, urban pressure or the limitation of available housing as a collateral effect of the strength of vacation rentals-, the eco-sovereignist coalition MÉS per Menorca, a formation that in various initiatives has offered external support to the current Executive of Francina Armengol (PSOE ), has decided to propose an unprecedented measure in the national territory that should be discussed in the coming months: the possibility of restricting the purchase of second homes by foreign citizens.
Precisely, the Balearic Islands leads another statistic at the national level: it is the region with the greatest purchase weight by foreigners, with 38.95% of the total real estate operations -especially single-family homes on the front line whose prices are around seven figures-, compared to 12.61 percent at the national level -a figure practically similar to pre-pandemic levels-, according to data from the latest Real Estate Registry Statistics.
And the fact is that, despite the fact that prices showed greater downward resistance during the pandemic -particularly those of new housing- compared to other crises, as the Bank of Spain pointed out last year, the favorable evolution of the The health situation caused by COVID-19 and, with it, the recovery of international mobility have served as a spur to buying and selling movements by foreign citizens – with the British (12.42%) and the Germans (10. 93%) in the lead-, a situation that in the case of the Balearic Islands has once again set off alarms.
For this reason, after the proposal of MÉS per Menorca, the Balearic Government will create a working group to analyze the regulations that prevent limiting the purchase of real estate by foreigners, the proposal of alternatives in order to modify these restrictions, the study of the different cases and experiences that exist in the European and international sphere in this matter and draw from it the conclusions applicable to the problems of the Balearic Islands. As approved on March 2 in the Balearic Parliament, the working group must deliver its report within a year.
“It is not about restricting housing to foreigners, but about preventing second residents from eating up the first residence,” the spokesperson for MÉS per Menorca in the Autonomous Chamber and promoter of the proposal told elDiario.es. initiative, Josep Castells, who, in the face of some of the criticism received for his initiative, asserts that “there is no element of xenophobia” in his proposal. “The problem is that there are too many second homes that perpetuate the problems of access to a first home in the Balearic Islands”, he clarifies.
As Castells underlines -and this is indicated by the latest index of real estate effort prepared by the Appraisal Society-, buyers in the Balearic Islands need to dedicate 16.8 years of full salary to be able to acquire a property, which is more than double what is required at the national level -7 years and eight months- and even in Madrid, where the figure stands at 9 years. “It is an abysmal difference”, recriminates the parliamentarian. In this regard, he explains that one of the elements that most aggravates this problem in the Balearic Islands is the acquisition of second homes by already residents “for the simple fact that there is more demand and, therefore, prices rise more”.
Not only that. He points out that, having much higher purchasing power, “they are willing to pay a lot, it is an offer that does not haggle and all this pushes prices up.” “The fact that luxury properties are priced very high ends up having an impact on the rest of the market as well,” he stresses.
A situation that is aggravated in the case of young people: according to the ‘Anuario de la Juventud en Baleares 2021’, prepared by the Universitat de les Illes Balears (UIB), the archipelago was in the second half of 2020 the Autonomous Community with the higher cost of access to purchase a free home for an employee between 16 and 29 years of age. The document indicates that the payment of a house is “unfeasible” for a young person alone, since it requires allocating 93.8% of the monthly salary to pay the mortgage payment and 111.2% in the case of an income of rental.
The case of the Åland Islands
Castells is aware of the difficulties that his measure may have a fit in the free movement rules of the European Union, but there are countries that have already established limitations: “There is a very particular case, that of the Åland Islands, in Finland, with a specific legal status where access to housing is limited to the inhabitants of the island. For us it is the sample button”. Likewise, it highlights the examples of Denmark -with its own regime in which free movement in housing is excepted- and Malta, whose case “interests us because it is an island, it belongs to the EU, it is touristic and they also experienced this problem “.
“We know that today carrying out the limitation is impossible, but it cannot be a reason to sit idly by. We have to analyze the EU treaties that make it impossible,” says Castells, who points out that in Spain “we have a much more favorable framework for the exceptions in the islands, in which perhaps a specific regime could be promoted to acquire residence. What is evident is that there is a problem that other European territories also suffer and that we cannot fail to address ” .
In this regard, the General Director of Housing and Architecture of the Government, Eduardo Robsy, defends the debate on this measure despite being aware of the null regulatory capacity of the Balearic Islands and the State when it comes to regulating it. “In the Balearic Islands we have a complex situation because, on the one hand, demand continues to grow in all segments, as does the resident population. The housing stock is not comparable to demographic growth; on the other hand, the building stock is not usually used to the habitual residence but to vacation rentals or to the purchase of a second residence by foreigners, which increases the demand for habitual residence compared to an offer that does not respond to it, with the consequent increase in prices”, he says.
Along these lines, Robsy draws attention to a fact referred to by numerous academic articles that have evaluated the impact of these situations: when the prices of a luxury real estate segment inevitably have a dragging effect on the prices of the market as a whole. .
“The last word would have the European Commission”
The person in charge of Housing points out that it is a “defensible” proposal, although “the last word would be with the European Commission”. “In housing we are trying to be innovative and creative, providing solutions but always from legal rigor, as in the case of the expropriation of large holders or the creation of a social housing fund in cases of foreclosures. We have known how to defend our measures and that is how the State has endorsed us. Fortunately, our regulations are safe,” he stresses.
Another of the voices that speaks about the new proposal, which she describes as “tricky”, is the president of the Association of Real Estate Agents of the Balearic Islands, Natalia Bueno, who values the sale by foreigners for the high collection it generates, something that he considers “positive for everyone”, although he regrets that these operations end up translating into price increases and “a problem in acquiring a first home for the Balearic middle class”.
“We must all sit down and assess alternatives,” says Bueno, who points out that, despite other tense points in the EU, they have opted for limitations, the “best measure” would be to further discount the purchase of the first home and that the reduced rate (5%) of the Property Transfer Tax is applied to homes of up to 300,000 euros -compared to the 200,000 currently set- and beyond 35 years. “The offer is scarce for less than 200,000 euros.” Bueno also points out that “many interests are involved in this matter: indirectly, luxury homes give work to many residents, from architects to gardeners. Nipping it in the bud is going to generate an economic problem in the working class that depends on it.”
The general director of Engels & Volkers in Mallorca and president of the Balearic National and International Real Estate Association (ABINI), Hans Lenz, pronounces himself more bluntly, pointing out that the conclusion is “absolutely clear: it is contrary to European legislation, to free circulation of goods and capital, that a member of the European Union is discriminated against when acquiring a good”.
The director would be in favor of such restrictions “if the second home is limited in the same way to the national resident as to the community resident. If it is only limited to foreigners, Brussels will stop that measure and obviously we will defend that equal treatment.” Lens is aware that the root problem is not unique to the Balearic Islands but it is “felt more strongly” on the islands: “Prices are being reached that make access very difficult for the population. This is unacceptable and must be fixed , but not by prohibiting and discriminating because then we create a new problem”.