Some Spanish real estate investment opportunities are going to get riskier as left-wing parties negotiate the next Government with policies to reduce returns and boost taxes.
The Spanish socialist party won the largest number of seats in the recent General Election but will likely need the support of the Podemos hard-left party to form the next Government.
Higher public-spending priorities, and a visceral dislike of capitalism on the hard-left suggest that tax breaks for real estate investors will come under fire, and make Spanish property investment a riskier proposition.
The Socialists have already indicated they plan to review tax breaks for landlords who rent to long-term residents as one of several ways to increase Government revenues. This could hit small investors who own a few properties and rent them out long-term.
The far-left Podemos party see most real estate investors as “speculators” and “vulture funds”, and get particularly worked up by funds and developers backed by foreign capital. Podemos have made housing affordability one of their key issues, and blame investors for rising housing costs in areas of high demand such as Barcelona, Madrid, and the Balearics.
Podemos are demanding the end of tax breaks for Real Estate Investment Trusts, known as SOCIMIs in Spain, which get tax relief for investing in rental homes for three years or more. SOCIMIs are designed to encourage investment in rental housing, which is a tricky business in a country where eviction of non-payers is slow and expensive. Podemos blame SOCIMIs and other investors for rising housing costs in hot markets, rather than high demand. The rental sector is a capital intensive business, and without SOCIMIs there would be less investment in rental housing, meaning few homes and lower quality – all bad news for renters.
Though nothing is yet certain, it’s likely the next Government will be some sort of coalition between the Socialists, Podemos, and perhaps some nativist parties from the Basque Country and Catalonia. In which case SOCIMIs and real estate investment tax breaks will almost certainly come under fire, all of which could undermine confidence in the Spanish real estate market, especially among foreign investors who value legal stability as well as returns. This will weigh on the market at a time when it already looks like it’s running out of steam.