The Balearic Islands of Spain are proposing a ban on foreign buyers.

Over the past decade, the Son Espanyol district, located in the center of Palma on the island of Mallorca, has become a focal point for buyers. "Foreigners started flocking to Santa Catalina, where they took the initiative. When they grew tired of the noise and the consequences of nightlife, they came here, to a place with many ground floors featuring patios," shares Mari Carmen Gutierrez, who has lived in this quiet area for most of her life. A walk through this district reveals an oasis of tranquility in the heart of a city with a population of 415,000. Car traffic is extremely minimal, and the freshly painted facades juxtaposed with modern designs and traditional small bungalows create a harmonious atmosphere. At first glance, it may seem that most houses have wonderful backyards and gardens, which enhance the overall property area.

Idyllic areas like Son Espanyol are popular among wealthy foreign buyers, especially those coming from mainland Europe. Interest in real estate spans the entire territory of the Balearic Islands, located in the eastern part of the Mediterranean Sea off the coast of Spain. Over the past ten years, nearly 60,000 foreigners have become homeowners on these islands. In 2021, the volume of real estate purchases by foreigners accounted for about 40% of total transactions in the market, according to data from the local property registry. Only the Canary Islands come close to this figure, with 25.87% of real estate sales attributed to foreigners.

The demand for housing here is enormous, especially among citizens of Germany, the UK, and France, which explains the average price in the area.300 dollars per square meterin the Balearic Islands, making it the second most expensive real estate market in Spain after Madrid in terms of price329 dollars per square meterThe rising prices have prompted the regional government of the Balearic Islands, made up of three leftist and centrist parties, to create a commission to analyze the possibility of restricting housing purchases for those who have not been residents of the islands for at least five years.

The press secretary of Francina Armengol, the regional leader of the Balearic Islands and a member of the centrist PSOE party, stated in October 2022 that the government supports the implementation of restrictions on home ownership. Armengol's deputy, Juan Pedro Illanes from the Podemos party, recently endorsed this approach, calling Canada a model to follow. Since January 1, 2023, Justin Trudeau's government has imposed a ban on foreign ownership of homes for a period of at least two years.

Despite the fact that some countries have imposed strict restrictions on foreign homebuyers, others, like Spain, have encouraged foreign investment in real estate by offering controversial "golden visas." By purchasing an apartment or house for at least500,000 eurosBuyers can apply for permanent residency.

Some experts who were surveyedEL PAÍSThey express doubts about the legal possibility of restricting real estate purchases for non-residents. In any case, they do not believe that such measures will significantly affect overall housing prices. In Son Espanyol, it is becoming increasingly difficult to find affordable housing amid high demand. Many locals agree on the necessity of the proposed restrictions.

“The Norwegian who bought many houses in our neighborhood would come to us, knock on the door, and offer...”700,000 euros“If we go to the notary the next day to finalize the deal,” says Juan Antonio Perez, a member of the neighborhood council who has been fighting against foreign buyers for many years, many of whom are purchasing property to rent to tourists. The atmosphere in the area is tense, with conflicts arising between local owners and investors. “This Norwegian investor told us, laughing, that in 10 years none of us will recognize this neighborhood,” Gutierrez recalls bitterly.

According to data from 2022, foreigners purchased the highest number of homes in Spain than ever before. In the first quarter of the year, notaries recorded that at least72,987 transactionsforeign buyers. This amounts to about20%From all residential real estate sales across the country during the specified period. Restrictions on the purchase of housing by foreigners or non-residents turn out to be more common than one might think. Like in Canada, Australia and New Zealand have also introduced restrictions on home purchases by non-residents.

In some EU countries, such as Denmark and Malta, it is required to be a resident for a certain period to gain the right to purchase property.

The EU treaties clearly state that there can be no restrictions based on nationality, freedom of movement, provision of services, and freedom of capital movement. There are examples of local governments that attempted to impose restrictions on non-residents, such as Flanders in Belgium and the Corsican parliament in 2009 and 2014, respectively. However, both initiatives were deemed incompatible with European legislation.

Whatever the rationale behind the Balearic Islands government's initiative, experts emphasize that such measures may only have a direct impact on specific areas, but will not lead to significant changes in the overall context. "Research shows that when prices in the luxury real estate segment rise, it creates a 'shuffle' effect in other segments... more affordable housing also becomes more expensive," explains Eduardo Robsi, an economist who served as the director general for housing in the Balearics until spring 2022.

According to him, housing problems in the region and in other overcrowded areas of the world are usually a result of population growth, which leads to increased demand. The national statistical institute predicts that over the next15 yearsThe population of Spain will increase by more than4 million peopleThe Balearic Islands, in particular, should grow in relative terms by at least25%Therefore, Robsi insists that more investment in housing construction will be needed, especially emphasizing subsidized housing. "There are no miraculous solutions," he concludes.

Hans Lenz, president of the Balearic Islands Real Estate Association, agrees that the main problem in his region is the lack of supply. "The population of the Balearic Islands has not received enough new housing for a long time... According to estimates,At least 16,000 homes are needed.The impact of bans on foreign homebuyers in countries like New Zealand, which came into effect in 2018, has been minimal. Since then, housing prices have increased by55%, reports José García Montalvo, a professor of economics at Pompeu Fabra University in Barcelona.

García Montalvo looks snobbishly at such measures, considering them populist and misleading: "It's just a way to tell citizens that others are to blame," he adds. "Moreover, these initiatives do not require government spending: building more subsidized housing is expensive and would be a much more effective plan." In Canada, housing prices have been continuously rising since 2010. In 2022, before Trudeau's Liberal Party implemented the ban, prices had already fallen by12%compared to the beginning of the pandemic. It is expected that in 2023 housing prices will drop further by15%not taking into account the new measures.

Nevertheless, not everyone agrees with the opinion that such bans are ineffective. Javier Gil from the Madrid Tenants' Union supports these restrictions: "The goal of this measure is to ensure that if someone buys a house, they intend to live in it. That is, to eliminate speculation and buying for the sake of renting," he recently stated on Twitter. The Canadian government had similar rhetoric when they introduced new housing legislation.

Southern Spain is also the part of the country that attracts foreign buyers. Mario Garnica, the director of the Engel & Völkers office in Malaga, notes: "The arrival of such clients with high purchasing potential has prompted developers to build homes with quality standards, regenerating neighborhoods and creating wealth and jobs in the city." However, he also emphasizes that "the other side of the coin is the rise in prices in the most sought-after areas, where prices have increased by about20%"...which leads to the relocation of the local population to other areas."

While in Canada the sale to foreigners is restricted, countries like Spain, Portugal, Panama, and Ireland have chosen the opposite approach: encouraging investment through so-called golden visas, which allow the government to grant residence permits in exchange for purchasing property of a certain value. This policy has helped revive Madrid's economy after the financial crisis.2008-2014 yearswhen the economy contracted and the unemployment rate significantly increased. Currently13 EU countriesThere are programs for obtaining citizenship or residence permits in exchange for investments, allowing individuals from third countries to acquire permanent citizenship or EU passports by investing in real estate or other assets.