The Spanish government recently agreed to take the new Spanish housing law to parliament for approval. The proposed new legislation will regulate rental prices, penalize owners of empty homes and define a large property owner and the concept of a ‘stressed area’ of the property market.
Why has this law come about?
The government has decided to introduce the law because many parts of Spain currently suffer from a “particular risk of lack of affordable housing for the local population”.
Read a guide to taxes on rental property in Spain.
What’s the definition of a ‘stressed area’?
Under the proposed legislation, a ‘stressed area’ (zona tensionada in Spanish) will be a district, neighborhood or even entire town or city and must fulfill two conditions:
- Average rental rates must have increased by 5% more than inflation for the previous five years.
- Average rental rates must total more than 30% of the average household income in the area.
The idea behind the ‘stressed areas’ is to encourage the local and regional authorities to build more public housing in those areas.
Which parts of Spain currently fulfil the conditions for ‘stressed areas’?
These areas include large parts of the Costa del Sol and Costa Blanca. Check out a map of ‘stressed areas’.
How long will an area be classified as ‘stressed’?
Once an area is designated as ‘stressed’, it will be classified as such for three years. Annual extensions are possible if the area still faces increasing and unaffordable rental rates.
Who decides if an area is ‘stressed’?
The designation of ‘stressed area’ depends exclusively on regional governments, several of which have already announced that they will not be applying the new legislation.
Which property owners will be affected by the proposed rental rate caps?
The new legislation also proposes limiting rental prices in ‘stressed areas’ of the market. However, the measure will only apply to companies defined as “large landlords”, i.e. that own more than ten homes. In practice, this means that individual owners who are landlords are exempt from this measure.
How will the new Spanish housing law affect smaller landlords?
Small owners (up to 10 homes) will have to comply with a freeze of rental rates in ‘stressed areas’. However, they will also benefit from tax incentives to compensate potential loss of income. The law proposes tax deductions of 60 to 90% on income from the rental property.
Who is affected by the withdrawal of tax privileges?
Spanish housing law currently offers housing rental entities a tax bonus, applied to companies that have let more than eight homes for at least three years and for which a minimum of 55% of their income comes from the rentals. The new legislation proposes a reduction of this bonus.
Thinking of renting to buy? Read this guide first.
What about tax bonuses?
The draft legislation proposes that landlords who lower their rental income by 10% compared to a previous contract in a ‘stressed area’ could qualify for the largest bonus, of up to 60%. This percentage could increase to 70% if the tenants were under 35.
Landlords could also qualify for a 70% reduction if they put properties they own on the market that were not previously considered as principal residences. For example, if an owner decides to rent out a holiday let to long-term tenants to use as their home.
There would also be deductions of 60% when refurbishment has taken place in the home in the last three years whose total cost is no higher than six months’ rent.
How does the new Spanish housing law define an empty house?
The law has yet to offer a clear definition. Presumably, properties that are currently being refurbished or are on the sale or rental markets will not be considered as empty. A property that is uninhabited is the likely definition and regional authorities would use data from utilities supply to confirm this, much as they do nowadays.
What happens to the empty houses?
If an individual or company owns more than four properties and any are empty, they may have to pay a surcharge in local council tax (up to 150% more). The exact amount and whether it is applied will depend on councils.
Uninhabited homes will be subject, belonging to a natural or legal person with more than four properties owned, to a surcharge in the Real Estate Tax (IBI) of up to 150% that may be applied by the municipalities. The decision, therefore, will fall on local councils.
What about help with paying rent and who will receive it?
In mid-October, the Spanish government announced the payment of €3,000 a year (€250 a month) to tenants aged 18 to 35 and whose annual income is less than €23,725. The amount is up to 40% higher for vulnerable households. Qualifying tenants would receive the rental benefit for two years.
Where can I find advice about letting properties in Spain?
Our expert team specializes in all aspects of Spanish property law including rentals. Get in touch now for a non-obligation consultation to find out how we can help you.