Making an unpopular Law more palatable for Foreign Property Buyers

For the past decade estate agents selling Spanish residential real estate have promoted properties to foreign buyers with the tagline that holiday home rentals can bring fantastic yields as an investment vehicle and pay off the running costs of such a home at the same time. Now the Spanish government has seemingly shot itself in the foot, for critics say controversial new legislation governing private holiday rentals will harm the economy, since renting out your Marbella home to holidaymakers will cost more and be far more difficult.

Spring Tide of Marbella Property Worries

If it’s one thing Spain’s economy desperately needs it is foreign buyers digging deep into their pockets to buy more, not less, Spanish residential real estate.

Yet, the Spanish government seems intent to alienate and irritate foreign buyers wherever and whenever possible, introducing new legislation on worldwide income reporting, property and wealth taxes and now this spring there will be a new law affecting the way in which home owners are allowed to rent out their Costa del Sol property to holidaymakers.

Over the last couple of years the rising trend for holidaymakers has been to stay in private villas and apartments rather than hotels and this has obviously enraged and alarmed hoteliers across Spain.
 
Up to now a Marbella home owner wishing to rent out their property to tourists didn’t have to worry too much about complicated regulations, but all that is about to change, making it far more costly and more cumbersome to rent out a private home.

La Caxias Bank recently published figures on this topic and stated that in 2012 close to 75% of overnight stays across Spain could be attributed to the private holiday villa and apartment sector.

A Licence to thrill

For homeowners desperate to meet their mortgage repayments, letting out their home to holidaymakers has often been the last resort.

For others, it was always a way of keeping the costs down on their Costa del Sol home and making a little extra for a rainy day. As competition among apartment and villa owners grew, so did the expectations of holidaymakers with regard to standards of cleanliness, comfort and luxury.
 
Up to now, property owners in Marbella and elsewhere at the Costa del Sol only had to ensure their home’s standard would wow tourists, inducing them to return year after year to enjoy the luxurious interiors and fabulous pool and terrace. However, now home owners will need a licence to bill, not just one to thrill.

The controversial new law will force home owners to obtain a licence before they can let their Costa del Sol property to holidaymakers. Naturally, the government has introduced a fee for this, which must be paid to the local authorities, leaving the field wide open for yet another corruption scandal in the future, as desperate home owners may try to smooth the path to a coveted new licence with a few backhanders to officials.

In addition, owners must guarantee that they will be contactable 24/7 in the event that an emergency befalls those staying in their Spanish property, for example fire, flood or storm. Furthermore, the Spanish property will undergo regular health and safety inspections.
 
If your home fails the “health check”, your licence may be revoked or not granted in the first instance and on top of that, a home that fails to meet all requirements will incur a huge fine, according to official sources in Madrid.

The new Law

The ultimate aim of the law is to provide fiscal and legal measures that will create greater flexibility in the lucrative holiday lettings sector and to ensure certain standards are met. Critics warn that this law will merely put existing property owners off from entering the market and scare away potential new buyers from investing in Spanish property.

Spain’s government has already approved this new piece of legislation, the controversial  law “La Ley de Medidas de Flexibilización y Fomento del Mercado del Alquiler” but critics, among them the main opposition parties, have so far rejected the draft bill, demanding greater clarification on a number of issues.

It seems obvious to critics of the law that this legislation was cooked up by the powerful hotelier lobby who have long regarded the private holiday villa and apartment lettings market as a thorn in their thigh.

From spring onwards, properties let out to tourists will be regulated by each of the autonomous regions instead of being governed by the Law of Urban Leases (LAU) as they have until now. Since regional laws are perceived to be far stricter than those imposed by the country’s central government, the law is widely seen as a step in the wrong direction.

According to Miguel Rodriguez, a lawyer based in Seville, this means temporary leases of apartments located in Andalusia will no longer be permitted unless the property’s owner possesses at least three properties in the same building. The law needs far more clarification, Mr Rodriguez said, for at present it suggested that only companies, not private owners, could rent out homes to tourists. Worse, this may vary from province to province in Andalusia and may be totally different yet again in other parts of the country.

In the Balearics and the Canary Islands as well as the Cataluña province, the tougher restrictions have already been in force, but it is too early at present to see their affect.

It remains to be seen, if the government in Madrid can make this new law palatable to individual foreign investors or if this legislation will open the door to institutional investors snapping up whole apartment blocks in Marbella and elsewhere at the Costa del Sol in a bid to dominate the lucrative holiday lettings market.