When Spain’s central government devolved responsibility for renting Spanish property to short term tourists legislation to the autonomous regions in 2013 many of the regions that attract the majority of overseas visitors already had some controls in place, Cataluña, Mallorca and the Canary Islands for example, although how rigidly it was being enforced is another matter. The only region with a big tourist rental market without legislation was Andalucía but that was rectified in May 2016 when Decree 28/2016 came into force.
Potential for rental income for property owners who want to let to tourists on holiday can be significant, particularly in areas which attract visitors year-round, in the cities for example – Madrid Barcelona and Málaga – or in Andalucía and the Canary Islands where mild winters mean demand continues throughout the year. The market is huge. Spain is the third most visited country in the world and broke the 75m barrier for the first time in 2017 – 75.6m overseas visitors were counted. Of these, the Ministry of Tourism estimates that about 65% stay in hotels, with the rest staying with friends or family, in their own homes or renting Spanish property privately. Visitor number in the first quarter of 2017 indicate that it will be another record-breaking tourist year in Spain.
Several factors were involved in this move to legislate; firstly, Spain’s very powerful hotel lobby had been calling for stricter control of the private rental sector for years, arguing for a level playing field but mostly, I suspect, the demands were driven by the underlying lack of competitiveness that still pervades much of the Spanish economy. The thinking seemed to be that if it was made harder for property owners to rent, by increasing red tape and setting higher criteria, more visitors would turn to a Spanish hotel for their stay. I doubt it. Apart from the fact that many hotels could stand improvement I see little crossover between the two sectors; if a customer looking for the flexibility and privacy of a rented property can’t find what they are looking for in Spain they are more likely to switch to a private rental in France, Italy or Portugal than head for a Spanish hotel.
Then there was the opportunity to increase tax revenue. Before the requirement for short term rentals to be licensed no one had a clue who was renting what to whom and for how much, meaning that an unknown amount of money was out of reach of the Spanish tax authorities; there was no declared income to tax. Taking both the short term and long term sectors together Spain’s Finance Ministry has estimated undeclared revenue from rentals of private homes is in excess of €4 billion. Now all that has changed and you can be sure that, as licenses are issued, the information will be shared. In 2015, the Spanish newspaper El País ran a story than indicated serious intent to crackdown on undeclared rental income and reported that people making their tax declaration online were seeing a pop-up message saying: “According to data in the Tax Agency’s power, you have placed property rental ads in various media, including the internet”. You can read that article here.
Legislation was also an opportunity to raise standards by defining minimum requirements and responsibilities, schedule inspections and institute penalties and fines for non-compliance. What is required varies from region to region so it is important that property buyers who plan to rent out their properties to tourists for short periods find out in advance what applies in that location or even if there is total ban. For example, in the Canary Islands holiday apartment lets are allowed only if permission is given by the community of owners and completely prohibited in certain designated ‘touristic’ locations. In the Balearics apartments aren’t currently covered by the legislation, only individual houses and townhouses a maximum six bedrooms sleeping twelve guests are licensed. Several regions prohibit single room occupancy while in Cantabria owners must show they have taken out public liability insurance even before they apply for the registration license.
Fines range from €2,000 to €150,000 in Andalucía and from €30,000 to €300,000 in the Canary Islands. One repeat offender in Barcelona has been whacked with a €70,000 fine. In the first year of operation for Andalucía’s new system over 20,000 applied for a license although it is estimated that about 80,000 properties are let out in the tourist market so there is away to go. Inspections started ahead of schedule and over 3,000 were carried by the end of March 2017. Of these 20 failed to meet the standard so the owners either have to rectify the problems or stop renting. If they do neither they can be removed from the register and fined. Overall I’m in favour of the tighter rules. The consumer should get a better product, sub-standard properties and landlords will be weeded out and the whole sector will be more professional. Most owners who were already renting out were doing what is now required by law anyway so why should others get away with below par offerings and tax avoidance. In the coastal hot spots nothing much will change.
But one area where they are big changes is in the city centres, in particular Madrid and Barcelona. where there is noticeable animosity between residents and short term tourists. The growth of the sector, mainly brought about by online platforms such as Airbnb and Homeaway, has caused rapid and often unwanted changes; one is a reduction in the availability of long term rental property as owners switch to the more profitable short term tourist market, with the inevitable price rises as long term supply diminishes. Another is the take over of entire buildings, to the extent that few or no residents live there, every apartment is for tourists and this changes the neighbourhood and environment. People living in adjacent buildings in what used to be quiet residential streets complain of parties through the night and constant noise and disruption.
Fighting back, the Barcelona town hall has fined both Airbnb and Homeaway €600,000 for continuing to list unlicensed properties. Both companies had been fined before, Homeaway paid up but Airbnb did not and at the present time it is estimated that about 60% of properties listed on the portals are still unlicensed. The town hall has now passed legislation, creating 4 zones moving outwards from the heart of the city. In Zone 1, covering Cuitat Vella, parts of Eixample and Poblenou, Vila Olímpica, Poble Sec, Hostalfrancs and Sant Antoni, there is a permanent freeze on license issue so that licensed property numbers reduce over time. No new licenses will be issued even when a license expires. In Zone 2 a new license will only be granted if one has expired, so numbers will stay the same. The only areas where limited growth will be allowed are Zones 3 and 4, but these are further away from the city centre and less likely to be so attractive to the typical tourist who stays just a few days and wants to be on top of the action.
In Madrid, where the average tourist stays for 4 nights or less, private property lets have to be advertised for a minimum of five nights although this difficult to enforce. There are no current location restrictions on license issue but the Madrid mayor has just proposed two new restrictions to make it less attractive; firstly, a 60 night limit per year and proof will have to be provided when the license application is made that the property owner lives permanently at the address for the remainder of the year. If passed, Madrid hopes to stem the move away from long term rentals as the city is facing the same problem as Barcelona, rising prices as the supply of long term availability reduces.
In Palma in Mallorca, the mayor is fed up waiting for the Balearic regional government to legislate further in what is already a tightly controlled tourist rental market. Against a background of rent rises of 7.5% in the last year and growing resentment from the local population, the mayor announced in March 2017 a total ban on short term rentals to tourists with a €40,000 fine for those discovered doing so. The underlying reason is the same as elsewhere: local people cannot find affordable homes to rent, either to live in permanently or for seasonal use related to jobs. Read more here.
Of the other big cities on the Mediterranean coast Valencia and Málaga are the least restrictive for the moment. Both require licenses but there are currently no location restrictions and in the case of city centre properties in Málaga gross yields of 10% are being achieved from very high occupancy levels. Be careful though, some buildings do have community statutes prohibiting short term tourist lets so you would be restricted to the long term market.
If you rent long term none of this applies; tenancies of more than two months to the same person come under standard Spanish tenancy law and in 2016 the average gross yield from long term lets was 6.3%. But if you do rent for shorter periods then in the regions of highest tourism you must apply for a rental license which in most cases is free although some municipalities make a charge. The license number must appear on all marketing, such as web pages, leaflets, flyers for example, and your property must comply wth the local standards. There’s much more administration required of owners who have to behave more like hotels, checking passports and forwarding copies to the local police within 24 hours for example. However, potential gross yields from 8% upwards for quality properties in the most prime locations mean many property owners in Spain still see the short term rental market as very attractive. So, if you are entering the Spanish property market now and rental income forms part of your plan it is essential to take independent advice about what is allowed and where. You can’t rely on an estate agent – I’ve met one this year who didn’t even know about the 2016 legislation in Andalucía. I covered the Andalucía rental laws in a bit more detail in an earlier blog which you can read here.