Tuesday, January 18

The housing law slows down foreign investment in the real estate market

The demand for housing in Spain by foreign investors has been one of the main recovery pillars of the real estate sector after the bubble burst at the end of the last century.

But after the approval of the new housing law, at the end of October, a lesser appetite of foreign investors for the Spanish real estate sector begins to be seen, which may increase next year when the rule comes into force.

“The uncertainty and legal insecurity, triggered by the intervention of private property and the regulation of rental prices, does nothing more than cause an expulsion effect for the foreign investor and, even, for the national”, he explains Ferran Font, Director of Studies and spokesperson for piso.com.

Interventionist law

Among the new measures to be adopted with this law, the following stand out: limitations and caps on rental prices in stressed areas and the obligation to establish a reserve of 30 percent of the buildable area for protected housing, of which at least half must be used for social rent.

This decrease in the interest of foreign investors in the Spanish market occurs after more than ten years in which foreign demand has not stopped increasing with figures that have been around between 10 and 12 percent of total home sales.

The stop of the pandemic

However, in 2020 this good evolution was cut short after the Covid-19 entered the scene. “The mobility restrictions that arose as a result of the coronavirus pandemic in 2020 took their toll on the demand for foreign housing,” says Font.

So while In 2019, 63,000 homes were purchased, last year the figure fell by 26.5 percent, standing in just over 46,000 properties.

In 2021 the panorama changed and, despite the uncertainty that still continues regarding the pandemic, foreign investment grew strongly until approaching the price levels of 2019, but after the approval of the new law this trend has slowed down and experts hope that after its entry into force in 2022 it will go further.

The example of Barcelona

A mirror in which to look at oneself and where the consequences of the approval of a law that intervenes in the sector can be appreciated has been Barcelona.

After the entry into force in October last year of the Law 11/2020 on urgent measures regarding income containment, limiting the rental price of homes in 60 Catalan municipalities with more than 20,000 inhabitants, there was a flight of foreign investors from Barcelona to other cities such as Madrid.

“There is a very active real estate market segment made up of companies that tend to dedicate their profits and excess cash to the acquisition of luxury real estate. Before, they mostly opted for Barcelona, ​​but after that law was approved they have diverted their interest to Madrid, “he says. Gonzalo robles, CEO of real estate Uxban.

Latin Americans, the best clients

Among the foreign investors that are more committed to the Spanish real estate market, the from Latin America and including Venezuelans, which from 2011 and fleeing from the legal insecurity of their country, began to acquire properties in Spain and to internationalize an eminently local market before the bursting of the real estate bubble.

However, millionaires from other Latin American countries have also increased their investment in real estate in our market, encouraged by the good climate, the quality of life, a common culture and language, and their physical and economic security.

They are not the only ones, other foreigners with great fortunes who also have a focus on the Spanish luxury market, the one with homes of more than 1 million euros, are British, French, American and Dutch, they point from Idealista.com.

However, the approval of the new housing law and its upcoming entry into force is deflating this interest, analysts acknowledge, and may drive these investors out of our market.