What will happen with the possible measure to limit the purchase of properties to foreign natural persons who are not resident in the Balearic Islands?

Nearly 60,000 non-resident foreigners (natural persons) have purchased a property on the islands in the last ten years. In 2021, the volume of property purchases by foreigners accounted for almost 40% of transactions in the community, according to statistics from the Association of Registrars. Only the Canary Islands come close to this figure, with 25.87%. The demand for housing is extraordinarily strong among foreigners (especially Germans, British and French) and non-foreigners, and the supply is extremely scarce, which is one of the reasons why the average price per square metre is 3,082 Euros, the second most expensive in Spain after the Community of Madrid with a small difference (3,229 Euros).

In some of Palma's neighbourhoods, where the search for affordable housing is difficult due to the pressure of demand from non-resident foreign investors, many residents argue for the need to at least set limitations. There have been cases - reported in the press - of investors who have acquired a large number of homes in a particular neighbourhood, proposing that residents pay a large sum of money if they would go to the notary the next day to formalise the sale.

The current tripartite government of the Balearic Islands, formed by the political parties PSOE, Podem and MÉS, has proposed a measure under which it would apparently prohibit foreigners who are non-residents of the Balearic Islands from purchasing a property on Balearic territory, taking as a reference to countries such as Canada, which for the next two years will prohibit non-resident foreigners from buying homes on its territory to alleviate pressure on housing prices. In the province of Ontario, for example, measures have already been taken in the past, with foreigners paying an additional 20 per cent when purchasing a property. Australia andNew Zealand have also imposed restrictions on property purchases by non-resident foreigners.

In theEU there are several cases, such asDenmark andMalta, where a minimum number of years' residence is required, whether resident or non-resident, in order to be able to buy a property. Restrictions are stricter in the Finnish archipelago of the Aland Islands. Europeans who want to purchase land in this Nordic location have to obtain prior permission from the authorities. These three exceptions are already included in the accession treaties of these countries to the EU, they were negotiated beforehand, but taking measures like this seems complicated when you are already a member state. Croatia also included, in its 2013 accession treaty, a series of restrictions on the acquisition of agricultural land by EU citizens for a period of ten years.

Such limitations face legal difficulties. The EU Treaties establish four fundamental elements that clash with the attempt to limit the purchasing power of a European citizen in any EU country. These are non-discrimination on grounds of nationality, freedom of residence, freedom to provide services and free movement of capital. Some EU territories have tried to change the rules with little success. For example, the Corsican parliament passed a residency statute in 2014, which required five years to obtain residency. It failed because the French president said it was contrary to the Constitution and European law and that, in any case, the Corsican region had no powers. The Belgian region of Flanders also tried in 2009 to establish a fixed period of residence for renting or purchasing, but the EU Court of Justice ruled in 2013 that it was contrary to the treaties because it was discriminatory and violated various EU freedoms, and struck down the initiative. But it left open the possibility of taking this type of measures if they are justified by the social interest of property, a small loophole that supporters of this type of restrictions in the Balearics want to take advantage of.

In the case of non-EU countries, the legal consequences are not entirely clear either, as bilateral treaties usually include a reciprocity clause. If Britons outside the EU were restricted to purchasing in Spain, what would the United Kingdom do?

In this sense, the Balearic Government proposes this possibility, especially for foreigners who have not been registered in the Balearic Islands for at least five uninterrupted and duly justifiable years, which contrasts and clashes directly with the policy of the Spanish central government, which precisely encourages foreign investment in the housing market, offering residency in exchange for purchasing a home for more than 500,000.00 €, which is called the "Golden Visa".

In short, as far as the Balearic Islands are concerned, and more specifically Mallorca, the message we are sending out is one of calm, as we are dealing with a mere proposal by an autonomous government that has not been well received by the Spanish state government, nor by the European Union, which legally restricts, and can even be interpreted as prohibiting the adoption of such a measure, and, to make matters worse, it is not viewed favourably by the majority of the islands' resident citizens.

Moreover, this measure would not solve the problem of the price increases of the square metre of land, since a legal trap would always be sought (and found) to avoid having to go through the aforementioned restriction, for example, by creating entities and investment funds that would buy exactly the same (or even more) than a non-resident foreign individual.

For these reasons, and on the basis of information from the Balearic Government's own administration, we can say that they are very pessimistic that a law prohibiting the purchase of properties by non-resident natural persons could be passed, at least in the short or medium term.

What could be feasible, but which is currently under political debate, is to impose a series of restrictions on these foreign individuals who are not resident in the Balearics, for example, to commit them or force them to have their permanent residence in Spain/Balearics, to impose a somewhat higher tax regime than for a resident, or not to speculate with this purchase, that is, to prevent them from buying homes for tourist exploitation, or seasonal rental, etc. We will see what will happen, given that in May 2023 there will be political elections in the Balearic Islands, in which a change of political colour can change everything.

If you have any questions, please do not hesitate to contact us,

Feliu Martorell
Guillermo Dezcallar

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