In early November, Spanish leaders announced that the country would grant some foreigners residency permits in exchange for home purchases.
To be eligible for residency in Spain, the prospective home buyers must purchase homes valued at a minimum of 160,000 euros, which breaks down to around $203,845. The idea behind the move is to jump start Spain’s distressed housing market and unload thousands of properties that have not been selling. Spain’s housing crisis began in 2008, and there are reportedly around 700,000 unsold homes on the market. According to a New York Times article on this decision, “The bursting of the property bubble dealt a severe blow to the construction sector, which had been one of the main engines of the economy, and left the country’s banks with a crippling pile of bad loans.”
Jaime Garcia-Legaz, who is Spain’s trade secretary, explained that the effort was to entice investors from countries like China and Russia who have a hard time buying homes because they are not part of the European Union. The secretary noted that this is nothing new and pointed out that Ireland and Portugal have taken similar steps.
Although the plan is still being fine-tuned, the special residency permits would allow home buyers to stay in Spain for longer than the usual 90-day period. It was acknowledged that there would be a time limit, which has yet to be determined. The residency permit will not give the recipient the right to employment in Spain.
Spanish economists feel this effort will help the country’s overburdened housing market tremendously. Along with an excessive inventory of unsold homes, there is also the huge problem of mortgage defaults. It was revealed in September that Spanish banks hold over 180 billion euros in bad loans.
Spain has long been a favorite choice for a second home among European buyers. Hundreds of thousands of homes in places like Majorca, Barcelona and Costa del Sol, are owned by European Union foreigners. Recently, there has been substantial activity from Russia and China. In 2011, Russians bought 1,757 units and Chinese buyers invested in 868 properties. An interesting observation was made about where the new buyers are heading. An observation reported in the NYT article by Spanish real estate specialist, Miguel Hernandez was that,
“The Russians have certainly been busy buying in holiday areas like the Costa del Sol, but the Chinese interest seems to have been much more in industrial areas rather than for coastal or other residential properties.”
It will be interesting to see how many more buyers form outside Spain get in on the action with the new regulations.
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