The Spanish government has reached an agreement with one of the main opposition parties to properly regulatethe real estate market in order to end the abusive increases ofrental prices in certain areasof the country.

With the support of “Podemos” political party, the government is planningchanges to rental agreements related tothe minimum lease terms, lease extensions, guarantees/ deposits andthe rent review. For instance: when tenants are individuals, compulsory lease term goes up from 3 to 5 years and automatic rent renewal, that used to be 1 year, increases to 3 years. If the tenant is a legal entity, compulsory lease term will be 7 years and automatic renewal also 3 years.

It was established that the maximuminitial deposit or guarantee should be 2 months worth of rent and that the owner’s right of retrieving the property before the end of the legal rental period needs to be specified in the contract.

The 2019 government’s budget agreement includes various decisions that are relevant for the regulation of the real estate sector:

  • Enabling municipal councils to elaborate a benchmark rental price index (which will besubject to periodic review).
  • Allowing municipal councils to temporarily and exceptionally declare an urban area “stressed” in case the rental pricesare abusive and preventaccess to these dwellings.
  • The development of a 4 year plan to increase the number of rental dwellings at affordable pricesto a total of 20,000.
  • Giving powerto homeowner associations to forbid or limit touristic rentals.
  • Proposes the development of an action plan from the SAREB  – government-owned companythatis responsible for managing assets proceeding from the restructuring of the banking system – that promotes the use of properties managed by the SAREB as social housing with affordable rental prices, by agreements with the Autonomous Communities and Municipal.

These decisions are meant to produce an increase to 2019’s budget, in terms of Housing, of 630 million euros (38% more than in 2018) and with the intention to keep adding up during the following years: 700 million in 2020 and 1,000 millions in 2021.

In Ripoll & Mateu Solicitors Mallorca, we offer our clients a comprehensive service in everything required for the sale of a property.

 

 

 

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There are various aspects one should consider before investing in Real Estate. Although it seems to be more profitable to invest in Real Estate than in financial products offered by banks and other financial institutions – buying with the intention of renting out, shows to be as profitable as 7,5%  for shops; 6,8% for business premises; 4,6% for garages and 3,6% for residential properties – the tax circumstances need to be taken into account for each case and market so that nothing takes you by surprise when it comes to income tax or other taxes related to  property purchases.

One of the most important decisions is wether to buy a new property or second hand, knowing that second hand properties have a disadvantage as you will have a 5-10% cost increase due to a Spanish tax on capital/property transfers (ITP – Impuesto de Transmisiones Patrimoniales). Different ITP % is applicable in different Autonomous Communities which makes it also very important to decide where to invest. In this aspect, you must also take into account other local taxes that might be applicable in different municipalities (for example, tax on increase in urban land value, paid by the seller).

On another hand, you will have to consider other taxes that will aggravate the total cost of your investment:

VAT (IVA – Impuesto sobre el Valor Añadido): On second hand properties, there might be a waiver of VAT exemptionif the seller and the buyer are a company or an individual officially registered as a landlord, and both parts agree to submit to this tax. In most cases, there is a reverse charge mechanism and the buyer does not actually pay VAT.

Notary and property registrationexpenses: will add up 2-3% to the total buying price of both residential or comercial properties.

Income Tax (IRPF)/ Corporate Tax (Impuesto de Sociedades): revenue made from real estate assets by form of rentals is taxed on individuals according to their financial tier and on companies around 25-28%. Once you stop investing in an asset, real estate gains will also be taxed at around 24% for individuals, andover 25% Corporate Tax for companies.

Property tax: it is a direct, general and individualtax, established and regulated by the State, although its total yield, as well as certain regulatory powers, areassigned to eachAutonomous Community.

Tax on capital/property transfers (ITP – Impuesto de Transmisiones Patrimoniales): as mentioned before, differs between each Autonomous Communities and taxes property and rights byinheritance or donation. To try to avoid it, there is the alternative of creatinga family business, whichis exempt fromproperty tax and a has a 95% bonus in property transfers tax, as long as all legal requirementsare respected.

Our foreign investment area offers legal assistance with regard to funds from other countries for investments in real estate and commercial Islands. Our team has extensive international experience, we also have cooperation agreements with international firms.

 

 

 

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Tourism is obviously a great growth opportunity, but the boom in property rental for touristic purposes has turned into one of the main concerns of homeowners associations and local governments.

The lack of control over short term rentals of touristic dwellings allowed the increase of long term rental prices and it forced many local residents out of their homes.

The increasing need to regulate this situation led the Spanish government to take action. However, tourism matters are responsibility of each Autonomous Community and urban planning of each Municipality, so the only way the government can regulate touristic housing is by reviewing the law. In this case, clarifying the definition of ‘seasonal rental’ in the Urban Rentals Law and giving more power to homeowners associations through the Horizontal Property Law.

Although law reforms are full responsibility of Spanish government entities, it has been announced that changes will only be made with the consensus of all parties involved: Autonomous Communities, municipalities, homeowners associations, relevant online platforms, hotel owners and unions.

For this purpose, the Ministry of Tourism has recently addressed the 17 Spanish Autonomous Communities and the Spanish Federation of Municipalities and Provinces with a proposal to review the Horizontal Property Law, that currently states that it is necessary to have consensus among all owners to make important decisions or change the homeowners association bylaws.

If the change in the law is accepted and implemented – and it seems that there is a general agreement among the autonomous governments – homeowners associations will have more decision power as it would bring the number down to a majority of three fifths of the owners (that represent three fifths of the total property area owned, which is the actual criterium used by this law) needed to, for example, forbid the touristic rental of dwellings in their building/ community. At the moment, as long as the existing community bylaws are respected, the homeowners associations cannot prevent each owner to rent their property, because their own vote will hold back the consensus. The Spanish government has also proposed to change the Urban Rentals Law, limiting seasonal rentals to periods of minimum 7 consecutive days, not exceeding a total of 45 days per year. However, there is still no consensus among all those involved on this issue.

Also to help the autonomous communities control touristic rentals, and to offer legal security to both property owners and the people renting, it was suggested the creation of a national registry of all housing for touristic use. This registry would make it compulsory to identify the people renting and also make sure homeowners comply with their tax obligations.

If you need more information about the Tourism Law and holiday rental, do not hesitate to contact us. We advise, defend and represent our clients at all levels. Our greatest asset is an infrastructure of professional leaders in each field of action, especially Real Estate and Tax, as well as our international vocation and multilingual capacity.

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