A review of the holiday rental clampdown in Spanish cities starting with Madrid

city centre tourists
Just arrived and looking for their apartment

Buyers need to know how the rules are changing as local politicians blame booming tourist demand and holiday rentals for driving up housing costs in Spain’s A-list cities.

There are clear signs coming from the tourists’ favourite cities in Spain that when town halls say they intend clamping down on short term tourist rentals in city centres they do actually mean it. So if you are planning to buy a property in the heart of one of Spain’s cities, either as a buy-to-let investment or as a holiday home to let out when you are not using it, it’s essential to find out what the rules are where you want to buy as not everywhere is the same. Also do some research about changes in the pipeline as it’s not safe to assume that how it is today will be the same in the future. Several cities are making changes to earlier legislation and in every case they are toughening up the rules.

The reasons for the changes are the same everywhere. Landlords can earn a higher return from the short term tourist rental market than from the long-term local market. Depending on the city, gross yields can be anything between 6% and 10%. So, local residents are being evicted at the end of long term contracts because the property owner wants to switch to the short term market. This inevitably reduces the stock available for long term rental and even high-earning professional families are finding it difficult to get affordable rents in central areas, often having to move further away from jobs and increase commute times. Some even have to move their kids to a new school. The situation for low earners and students is even more desperate. The demand for centrally located apartments as buy-to-short-term-let investments is pushing up buying prices beyond affordability levels for local residents so they are being squeezed out of both the rental and buying sectors,

Tourist numbers in Spain have boomed across the board with new all-time records in each of the last four years. The traditional sun ’n sand family holiday is, of course, what most people think of as the typical Spanish holiday but the short city break sector has also been performing at record levels with double-digit growth in Madrid and Mallorca and the Mediterranean coastal cities, above all Barcelona, Valencia and Málaga.

Demand is so high that some buildings no longer have any local residents at all, just tourists. Where residents and tourists are living side-by-side there is often friction caused by visitors partying through the night and tenant changeovers every few days. High tourist numbers are making residents’ lives unbearable while at the same time, bringing in income to local business such as shops, bars and restaurants. As with everything there are pros and there are cons so it’s all about getting the balance right and many would say that’s not happening at the moment. So local politicians are listening to their constituents who are demanding change.

Tourist rental clampdown in Madrid

On September 27 Madrid City Hall is expected to approve the latest proposals, with the aim of reducing the number of tourists apartments in the city centre which they claim is saturated and unaffordable for local residents. It’s proved difficult to enforce the existing 5 night minimum rule which was meant to wipe out the short break market as the average city break visitor stays for 4 nights or less. Now, they hope to push tourist demand further out, claiming that the central areas that tourists want to visit are all easy to reach by metro or bus. The main ideas which, if approved, will come into force at the start of 2019 are:

Any property rented out for more than 90 days a year in three central zones will be required to have a business licence and the owner will be deemed to be running a commercial business. The expectation is that additional taxes will be a deterrent. That wouldn’t on its own make much difference but the requirement that a licence will only be granted if the property is located in a building with a separate entrance, i.e. the main portal will be for residents only and any tourist apartments must have separate access, is expected to exclude 95% of all properties in the designated zones, totalling about 8,000 properties. The three designated zones are: 1) inner ring: Centro, 2) second ring: the whole of Chamberí and parts of Chamartín, Salamanca, Retiro, Arganzuela and Moncloa-Aravaca and 3) outer ring: the remaining parts of the second ring zones plus parts of Tetuán, Users, Carabanchel and Latina.

Properties let for fewer than 90 days annually and not located in the three central zones, will not be affected by these new proposals. Also not affected are properties for long-term rental as they fall under the standard Spanish rental contract, these proposals are for tourist lets only.

What is not clear is what action will be taken in respect of existing short term lets. The draft proposals refer to the conditions for issue of new licences but does that mean that they will be going after the thousands that are already listed on Airbnb and Homeaway and other portals? It seems that is likely as it has already been reported in the press that the town hall has over 500 cases under investigation of which 147 have been ordered to cease operating.

So that’s Madrid covered. Still a great place to buy for yourself but only if rental income isn’t an essential part of your purchase strategy. If these latest proposals aren’t effective you can be sure they will get even tougher. In my next post I’ll cover the Mediterranean coast and look at Barcelona, Valencia and Málaga.

With a clampdown on tourist rentals underway, getting the best independent advice has never been more important when buying in Spanish cities, so get in touch to find out how The Property Finders can help you with expert guidance. Contact The Property Finders by email info@thepropertyfinders.com, call +44(0)800 622 6745, visit www.thepropertyfinders.com, or fill in the form below.

Article by Barbara Wood of The Property Finders