Lawyer Raymond Nesbitt explains the changes in legislation of holiday rentals in the autonomous region of Madrid.
By Raymundo Larraín Nesbitt
Lawyer – Abogado
29th of June 2017
Holiday rentals in Spain are experiencing an explosive growth boom. So much so, that holiday rentals are reportedly soaring by two digits as highlighted by many recent headlines in Spanish Property Insight and other news media:
Is this growth sustainable?
Underlying reasons of this new trend
This phenomenon, mirroring what has happened already elsewhere in the world, can be explained partly by Spain’s credit restriction which is forcing many would-be-buyers into renting in lieu of buying a property outright. This was unheard of pre-recession as Spaniards traditionally buy property instead of renting it as they see rental as wasted money. This was one of the consequences I pointed out would happen in my article from 2013 New Measures to Bolster Spain’s Ailing Rental Market.
Additionally, and more importantly, the explosive surge of rental portals has fuelled this unstoppable advance. The fact that many regions in Spain have been caught on the wrong foot as they are still coming to grips with this new reality. Meaning these regions are simply not fining unregistered landlords. Moreover, not to mention the vast majority of rental income is going undeclared to the Spanish Tax Office. Only these two reasons alone account for the dramatic spur in rental growth we are witnessing throughout Spain.
In the space of only one year Madrid has doubled its capacity of holiday rentals, from 10,000 to 20,000. To the point there are an estimated non-registered 17,000 rentals which are deemed illegal by the local Authorities.
Madrid, unlike Barcelona, has taken a soft stance against this explosive proliferation of holiday rentals. Barcelona on the other hand has over 40 inspectors patrolling the streets and trawling through internet rental portals to uncover illegal lets. This goes on to explain why only 40% of Barcelona’s holiday lets are illegal as opposed to 85% in the region of Madrid.
Consequences of an unchecked growth
As a result of this huge demand, rental prices have skyrocketed in some parts of Spain increasing by more than two digits year-on-year. This has affected the local market which have seen how long-term rentals were morphed into short-term lets as they were much more profitable for a landlord.
This has brought about less property available for locals and a generalised increase of rental prices as a result of the shortage in stock. The law of supply and demand at its best. Aggrieved locals have demanded the region take immediate action against this new trend.
One of the new consequences of this backlash was announced yesterday as the region of Madrid will amend its holiday rental law from 2014 allowing Community of Property Owners to outlaw holiday home rentals going forward. Although this may sound like a tough measure, the truth is that as I care to explain in my article on Community of Owners, to amend the Master Deed of a community, unanimity is required. In other words, everyone in the community has to cast the same vote to ban holiday rentals.
Naturally, If I am a landlord looking to make a killing during the summertime rental season, I will vote against such a measure. So unless Spain's Horizontal Property Act is amended to accept a majority vote, this announcement made yesterday, which caused such a media commotion, will fall flat on its face and it´s a classic case of much ado about nothing. Because it will not affect one iota holiday rentals, nada.
This much-publicised new measure lacks fangs and will prove a futile exercise if it’s not accompanied by more robust actions to contain the new holiday rental tide - excuse me - more like a tsunami.
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