Spain's planned 100% property tax for non-EU buyers could hurt more than it helps, economists say

• Spain's planned 100% tax on non-EU homebuyers is unlikely to solve its housing crisis.
• Spain's prime minister said too many foreigners were buying properties as investments, not homes.
• But hiking taxes could discourage buyers and hurt Spain's economy, economists told BI.

Spain's plan to impose a 100% tax on homebuyers from non-EU countries like the US and UK may fail to achieve its intended results, and could easily backfire on the country's economy, experts told Business Insider.

Prime Minister Pedro Sánchez announced the measure on Monday, as part of his government's efforts to tackle the country's growing housing problem.

If approved by lawmakers, the 100% tax would effectively double the cost of properties for non-EU homebuyers.

Sánchez said that too many foreign buyers saw Spanish property as an investment, and were buying homes for financial gains rather than to live in.

But experts said the impact may not be what the government hoped.

Jesús Alonso, a real-estate agent with Engel & Völkers, said the tax was unlikely to resolve Spain's housing crisis.

Instead, he said it could trigger a decline in demand for luxury properties, which could reduce new projects, especially in regions reliant on foreign buyers.

He also said the move could hurt regions reliant on foreign spending, as well as the retail and hospitality sectors, especially in coastal regions.

"A drop in demand could discourage new developments and stagnate this market," he added.

According to Spain's Association of Registrars, foreigners bought 24,700 properties in Spain in the third quarter of 2024, accounting for 15% of all real estate purchases.

This included EU and non-EU buyers.

The number was higher in the first half of 2024, when foreigners bought and sold 69,412 properties, or 20.4% of total sales and purchases, according to data from Spain's General Council of Notaries.

Antonio Fatas, a professor of economics at INSEAD, a French business school, said foreign purchases are not large enough to determine market prices.

He described the 100% tax as an "easy" fix to a "complex" problem, one that ignores the underlying cause of Spain's housing crisis, which is about supply and demand.

According to research by Caixa Bank, the supply of new housing in Spain is being weighed down by factors including a lack of land earmarked for development and a shortage of skilled labor.

"In the absence of a significant increase in the housing supply in the coming years, the gap between supply and demand will steadily widen," it said.

Caixa Bank said in September that it expected Spanish house prices to rise by 5% in 2024, and 2.8% in 2025.

José Carlos Díez Gangas, an associate partner at the venture capital firm LUAfund, said the government's strategy is to try to curb demand growth.

However, echoing Fatas' point, he said: "There is a shortage of supply, and the greatest effect will be on prices, which will surely continue to rise until more houses come on the market."

At the same time, Spain has seen many ghost towns spring up, due in part to the 2008 financial crisis, a lack of public services, and migration from rural areas to cities.

Some estimates point to upward of 3,000 abandoned villages, even as other areas struggle to find enough housing.

Still, experts say the latest government idea could backfire on the economy as a whole.

"Does it make sense to make it difficult for a foreigner to buy a home in Spain?" said Fatas, adding: "Clearly, this represents a flow of capital into Spain that can have positive effects on the economy."

He said that stopping these flows would "negatively affect the construction, tourism sector, and anyone who could benefit from such a transaction."