Plans To Grant Investor Residency Could Revive Spain's Real Estate Market

A new programme offering residency by investment is starting to breathe new life in Spain's flagging property market—even though it is still at draft stage. After a bubble that saw the price per square metre (about 10.76 sq ft) for new build property soar by almost 182% between June 1997 and June 2007,  according to appraisers Sociedad de Tasación, the Mediterranean country was among the worst hit by the 2008 credit crunch and the ensuing recession. As thousands of units languished unsold, values declined rapidly—again, Sociedad de Tasación data shows that the price per square metre for new builds dropped by nearly 27% between June 2007 and June 2013. Alex Vaughan of Barcelona-based realtors Lucas Fox thinks the overall decline was even higher. “From my personal experience, I’d say prices have gone down 20% to 50% and in some areas even more than that, although I think the market partly needed a retrenchment.” However, hope is on the horizon for the Spanish real estate sector. Last May, borrowing a leaf from the book of other beleaguered countries, including Portugal and Cyprus, the Spanish government put forward a bill, the Proyecto de Ley de apoyo a los emprendedores y su internacionalización, granting residency to investors from outside the European Union who spend €500,000 or more in local property. The bill is currently making its way through Parliament but is not expected to see significant amends. Experts at Residency in Spain, a joint venture between Lucas Fox and Spanish law firm Ecija, explain that, if the draft law remains unchanged, it will grant qualifying investors a special visa allowing them to stay in Spain for a year (up from the current 90 days), plus a further two-year residency permit, renewable every two years. Buyers will have to meet some basic financial and personal criteria, including having no criminal record and being able to cover their living expenses, and must fund the first €500,000 of their purchase with fresh capital, although financing may be permitted above that threshold. The residency permit is expected to extend to the investor’s family, including children under 18 years of age. Residency by investment is not in itself a novel idea—a number of countries, including St Kitts & Nevis, have long been offering residency or even citizenship incentives to attract foreign capital—but in the case of Spain, Latvia, Malta and Portugal, residency comes with the added advantage of unrestricted movement within the Schengen area, the group of 26 countries that have removed checks across common borders (Spain, France, Germany, Austria, Belgium, Denmark, Estonia, Finland, Greece, Hungary, Iceland, Italy, Latvia, Lithuania,  Czech Republic, Liechtenstein, Luxembourg, Malta, The Netherlands, Norway, Poland, Portugal, Slovenia, Slovakia, Sweden and Switzerland). “–free travel within the Schengen area is what’s appealing to buyers,” confirms Joanne Leverett of global real estate advisor Savills, who has seen very high demand for Portuguese property, particularly from mainland Chinese buyers, since the country introduced its Golden Visa scheme, and expects much the same to happen in Spain. Another attraction is that the residency bill, unless amended, only requires applicants to travel to Spain at least once during the initial residency period, and allows them to keep their tax residency where it best suits them. However, Spain also adds to the mix a number of lifestyle draws, from a warm climate to centuries of history and vibrant culture, that make it stand out among the many countries offering this kind of package. “Spain already is one of Europe’s top second home destinations,” notes Vaughan. “Those who are registering their interest are mainly people who want to be here anyway. All the lifestyle reasons to come to the country are still there and property has become more affordable. “ “Spain is much better known than Portugal and has more to offer,” agrees Leverett. “For example, South African buyers are more interested in Spain but have no interest in Portugal, even though the visa conditions are similar.” Although it is not expected to come into force until later this year or even early in 2014, the residency programme has already whetted international appetite. Vaughan reports enquiries from foreign investors, mainly from the Far East, India and Russia, have tripled since the measure was announced. Plus, he adds, “We have also had quite a lot of interest from America, which rather surprised me. It may be these people were already looking at Spain and now this has come up they have decided to take advantage of it.” According to Leverett, the rapid surge in enquiries for Spanish property has partly been driven by “a bit of confusion” as some people misunderstood the Spanish government’s announcement earlier this year and assumed the law had already been passed and would soon become effective. Partly, however, this early interest is linked to the fact that “the draft as it stands today suggests that you don’t necessarily need to make a new investment—if you have already bought a Spanish property and you meet all the requirements, you should get residency,” Vaughan says. Both he and Leverett are optimistic about the future impact the programme will have on the Spanish market in months to come: after all, Leverett says, “if we see already see interest now, we’ll definitely see an increase in demand when the scheme is ready.”

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