According to the official estimate of the Ministry of Development, in the current struggling housing market, there are between 680,000 and 900,000 unsold new houses in Spain. Last year 361,831 houses were sold, half that of five years ago. The Government is searching for solutions to dispose of this huge amount of vacant housing and the Secretary of State for Commerce, Jaime García Legaz, has announced that the Government will be studying the possibility of granting temporary residence to foreign persons that purchase a house worth more than €160,000.
As is acknowledged by the Government, it is hoped that the measure will attract Russian and Chinese citizens willing to spend time in Spain, preferably at the Mediterranean coast where half the vacant housing is located. The problem is that long-stay tourism requires an entrance visa every time the tourist come to Spain and the bureaucracy that this entails means that many potential purchasers decide not to buy.
In fact, outside of EU citizens, Russian citizens are already among those that buy most houses in Spain. In 2011 they bought 1,645 houses, primarily for tourism and on the coast, amounting to 7.86% of housing bought by foreign persons. This means that, of non-Spanish national purchasers, they were in fourth place, only surpassed by three EU countries, UK, France and Germany. Half the housing acquired by Russian citizens was new and the majority had an area of greater than 100m².
According to the statistics of the Ministry of Development, the profile of the house purchased by Chinese citizens is very different. These buyers usually arrived in Spain for employment, taking first place among foreign persons that enter the housing market for this reason. According to data from the College of Housing Registrars for Commercial and Personal Property in Spain, of the houses acquired by Chinese citizens in 2011, 68% were in big cities, second-hand and with an area of between 60m² and 80 m².
The Government´s measure has been accompanied by much discussion for two main reasons, the fear that providing temporary residency visas could be used by mafia groups to settle in Spain, where Chinese and Russian mafias, together with Columbian and Italian mafias, are considered the main organised criminal groups. Indeed, this is confirmed by the recent dismantling of the mafia group headed by Gao Ping in what has become known as Operation Emperor. This group deprived Spain of between 200 and 300 million euro in annual revenue and the operation exposed a network of money laundering and tax fraud.
According to the National Intelligence Centre, Russian or ex-soviet mafia groups have chosen Spain as a place to relax and shelter and they are mainly engaged in money-laundering and real estate investment.
With these precedents, the Government initiative is understandably causing some debate.
Temporary residency is regulated by Law 4/4000 (11 January) on the rights and liberties of foreigner persons in Spain and their social integration known as the Foreign Persons Law. Article 31 of this law regulates temporary residency, which at part one explains that temporary residency is the situation which authorises stays in Spain for a period greater than 90 days and less than 5 years. Depending on the motivations of the permit holder, authorisations for periods of less than 5 years can be renewed at the permit holder´s request. The duration of the initial temporary residence authorisations and the renewals are to be established by regulations.
The second part of this article regulates temporary residency without permission to work, which is that which the Government initiative proposes for those that buy houses that cost more than €160,000. This point says that the initial temporary residency permit without permission to work will be granted to foreigner persons that have sufficient resources to support themselves and, if necessary, their family. Thus, is the measure concerning the purchase of houses necessary where having sufficient resources to live in Spain was already sufficient to obtain the temporary residency permit?
It cannot be forgotten that the principle object of the measure is to benefit the Spanish economy, support tourism and re-energise the housing market from which the Spanish economic crises stems. It aims to mobilise a part of the housing stock which is still slowing down the possibility of economic recovery, as most of it is held by the banks.
It is undeniable that a way of kick-starting the financial system is required and although this measure has been much criticised by its opponents, in reality it is being put in practice in other countries. Spain is not breaking new ground, but is inspired by other countries, both in the European Union as well as non EU countries. We can find many precedents as governments struggle against the economic crisis of the last few years.
This should however be qualified by pointing out the system that each country has adopted when using this type of measure varies and is usually unified with the theme of investment, such as the creation of companies or purchasing a house.
The model closest to the Spanish cabinet´s measure is that of the Portuguese Government, which modified their rules in September 2012. Portugal facilitates granting a temporary residency permit to those foreign citizens that settle in the country with the purchase of a property that costs more than €500,000.
Portugal has not been the only country to adopt this measure; the US is currently awaiting the approval of Congress for a proposal to Improve Visas and Stimulate International Tourism.
The reform includes a package of measures relating to immigration designed to support foreign investment in the US. It contains various provisions for obtaining the residency visa, such as such as opening a company in the US that will grow jobs. This is one of the aspects of the measure that has been adopted in countries such as Ireland, the UK, France, Italy and Germany. Here, the investment is not in the housing sector but is in the business sector with the aim of growing jobs. For example, the UK uses a system of immigration by points which benefits the citizens which arrive to the country with an investor category visa. In the same manner, France proposes an exceptional economic contribution and Germany a general economic interest or regional necessity as a requirement to obtain the benefit of a residency permit. This is provided that the activities of the foreign citizens have positive effects on the economy and that funding is guaranteed.
Furthermore, the US proposal in a bipartisan bill, presented by senators Charles Shummer (New York) and Mike Lee (Utah) consists in granting visas for foreign investors where they wish to buy residential properties that cost more than USD500,000. The objective is to increase the demand in the US housing market for foreign investors that wish to spend time in the country, especially on the east coast in destinations such as Florida or San Marino.
Despite the criticisms of this recent Government proposal, this measure could contribute in some way to the improvement of the worrying situation of the Spanish housing market. According to Senator Shummer, to create advantageous conditions to incentivise foreigners to acquire property is a way of creating new demand without increasing state taxes by a cent.
This article is not considered as legal advice