Blog post copyrighted © 2018. Plagiarism will be criminally prosecuted.
By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
25th of April 2018
Since the floodgates to devolved competencies were open by the government in 2013, which I heavily criticized at the time, the asking rental price in Palma de Mallorca has risen by over 40%. Moreover, over the last two years this trend has accelerated, and rental prices have hiked by two digits p.a. Clearly, this is unsustainable long term. The advent of huge American companies, such as AirBnB, clearly correlates the push in rental prices upwards.
Landlords, only too keen to jump onto the bandwagon, have pulled their properties from long term rentals morphing them into holiday rentals which are far more lucrative. This has created a huge shortage in the stock of available long-term rental properties for natives, driving prices further up in a pernicious spiral.
Whilst the problem remains serious, I strongly disagree with the blanket approach of forbidding holiday rentals. As I have cared to examine in previous articles of mine, this introduces malicious asymmetries in the market that compound problems furthermore.
As an example, as reported yesterday by El Pais daily, the Mallorca left-wing coalition (PSOE, Podemos and group Més per Mallorca) approved to ban holiday rentals in Palma city centre. The idea behind this is to protect natives so they have access to affordable long-term rentals as they were being priced out of the market by holiday rentals. Or at least, so goes the theory.
In practice, the irony is that a left-wing coalition has created a side effect making the rich, richer and the poor, poorer. This is because holiday rentals will still be allowed in chalets (detached villas), normally owned by affluent owners, whilst it will be outright banned in flats (normally owned by less well-off citizens). The automatic effect this ban has is to reduce the property value of properties located in the city centre whilst simultaneously increasing the value of detached villas which now have carte blanche to be let as holiday rentals.
This is precisely why in my previous article on the Balearics I warned that lopsided regional regulation had the risk of derailing the rules of a market economy on artificially stifling competition and driving prices up; which is not good news for consumers. My conclusion to my September article was that the Spanish government needs to pub stomp this by acting resolutely and rein in devolved competencies which would iron out all these pesky market distortions. The holiday rental market is becoming increasingly fragmented and confusing in Spain and needs to be urgently addressed nationwide from Madrid unifying in one legal body the holiday rental regulation.
Banning holiday rentals in city centres is not the answer; it has already been tried and tested in other large cities and failed (i.e. Berlin). Curtailing property rights is not the answer and is a frontal attack to private property which is enshrined in art. 33 of Spain’s Constitution. Politicians have no business restricting individual’s property rights, thank you very much. This faux pas by local politicians will adversely affect foreign investments in the Balearics at a time when the property market was roaring.
At times, I get the distinct impression politicians have an innate ability to disrupt the market and plunge us headlong into recessions. Surely, just my imagination…
On a different note, as reported yesterday by financial newspaper CincoDias, AirBnB has signed an agreement with the Spanish Tax Office to disclose and pass them all the financial details of landlord’s guests. This is going to constitute a massive shakedown of undeclared holiday rentals (read tax dodgers). If you own property in Spain and you rent it out, whether long or short-term, you must declare your rental income and pay taxes in Spain.
The Spanish Tax Office is growing weary as billions of euros are going untaxed. The AEAT will be cracking down on this skulduggery going forward. Over 1,400 properties have already been fined by Authorities in the province of Malaga alone as they did not meet the holiday rental requirements set out by regional regulation.
We strongly advise all landlords (resident and non-resident) to declare and pay their rental income taxes in Spain.
Our law firm offers a bespoke tax service, for a very competitive fee, which is tailored for holiday rentals (Holiday Rentals Accounting Service). We can reduce on average by 40%, or more, landlord’s tax bills. We will save you more money than what you spend on hiring us. It pays off to be legal.
“Politics: the art of creating new problems where none existed.”
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