Will foreigners no longer be allowed to buy in Mallorca?

Will foreigners no longer be allowed to buy in Mallorca? No property at all—neither a house nor an apartment? Admittedly, that’s a bit provocative. But at least that’s how it sounded in a debate in the Parliament of Mallorca, as if there could now be a majority in favor of allowing, in future, only people who have been resident on the island for at least 5 years to acquire property here. That does not mean you have to be Spanish to buy in Mallorca; it basically means you would have to have your primary residence on the island.

There are critics who believe such a regulation would not be compatible with European law. I don’t think there would actually be a conflict here. Sure, first the government would have to present a corresponding law at all, and parliament would have to pass it. Then one could and would have to examine, on the one hand, whether it is in line with Spanish national law. And whether it is compliant with European law. But in principle, the rule is that as long as EU citizens are not treated differently, there is usually no discrimination involved. And since any EU citizen would be free to settle in Mallorca as a resident, it would, in my opinion, be a permissible restriction.

It would be interesting above all whether it should still be possible for companies to buy property. Because then, on the one hand, foreign European companies must not be treated differently than a domestic European company. And really, it should not be relevant whether the shareholders—i.e., the owners of the company—are locals or foreigners. That would make the likely first circumvention strategy of a possible law obvious. Or else—should a government actually bring itself to pass a discriminatory regulation—a possible violation of European law would exist.

Parliament did not vote. Nor can it, because a draft law would first have to be introduced for a vote. Viewed in isolation, it is in fact largely powerless. But nevertheless, it is made up of members of the various parties and of course there is a signaling effect toward the government, especially since there are less than six months to go until the next election.

The parliamentary debate was brought about at the initiative of the opposition regional party El Pi. And unlike the last attempt in July, in which the Island Council, in rare unity between conservatives and the left-wing government, blocked a similar push by the left-wing party Podemos, this time the mood among the majority of members apparently was different.

For now, it is only to be understood as a party-political mandate to their own representatives on the Island Council. Who would of course have to coordinate with the central government and other involved bodies. But from my point of view, it is now a clear expression of will by the elected representatives—one that their own party colleagues can hardly completely ignore. Especially not ahead of the elections.

For a long time there has been a major problem with affordable housing for locals. Comparable to any location in high demand, in recent years it has become almost impossible here to find a rental apartment under 800 euros at all. And that at an income level that is well below Munich. Likewise—as in many parts of Europe—for average earners it is hardly possible anymore to build up property ownership through employment. In response to these grievances, holiday rentals have already been dramatically restricted for years. Then rent caps were introduced. Which have predominantly not worked across Europe. And now this kind of sales freeze is supposed to follow as the next ineffective measure …

Relatively simple. If demand is greater than supply, prices rise. Now, it is actually a widespread ideology among left-wing and right-wing ideologues that you just have to prohibit enough so you don’t have to be creative yourself.

That already went thoroughly wrong in the examples above—holiday rentals and rent caps. But what is so bad about sales restrictions? Wouldn’t that push prices down?

Yes, it would indeed. Demand would suddenly collapse. Until investors then snapped up the properties at a low price. Probably behind nested corporate structures. With a Spanish company at the front. So if the government, in a possible draft law, fails to effectively prevent that, this would be the first point at which a law would simply be circumvented—or else, as already explained, would possibly not be compliant with European law.

These villas, which have been built since around the 1980s, especially in the southwest or also in Son Vida, were always conceived as luxury products in their respective era. They were never part of the normal housing market. Instead, they were developed as new residential areas by Mallorcans who owned huge tracts of land there. A lovely Yes, it would indeed. Demand in the luxury segment would suddenly collapse. Until investors then snapped up the properties at a low price. Probably behind nested corporate structures. To rent them out. Because these villas, which have been built since around the 1980s, especially in the southwest or also in Son Vida, were always conceived as luxury products in their respective era. They were never part of the normal housing market. Instead, they were developed as new residential areas by Mallorcans who owned huge tracts of land there. A lovely article has just appeared in the Mallorcazeitung about Santa Pon

But is there, of course, also a problem with affordable housing in the attractive cities? Yes, that is absolutely the case. Of course, prices in Palma have also shot up. But in fairness, that is a phenomenon we have seen all across Europe in the capitals. And one that was simply created by the unrestrained printing of money and the low-interest-rate policy.

If we want to counteract that here, in my opinion it would only work by re-designating certain areas or types of property in terms of their use. That could of course also include use exclusively by residents. And I suspect that, to be legally watertight, there would have to be grandfathering. But then one would also have to think about whether residents should continue to be allowed to put their owner-occupied property into holiday rentals. In my opinion, that has massively promoted illegal holiday rentals and in fact has not contributed to easing the housing market. And ideally, we counteract it through new construction. Because there was already a lack of housing ten years ago. And the current government has not fulfilled its election promises to create housing.

People who would have liked to buy in Mallorca would then rent. So rents would continue to rise. Perhaps not in the standard segment, but at least in the luxury segment. Other customers would move to other locations. Because Mallorca is fantastic. But if the disadvantages of the product begin to outweigh it due to excessive and aimless regulatory zeal, more and more customers turn away. After all, the overall package has to remain attractive.

In addition, I would like to outline the revenue side as well. Property transfer tax here has so far been 8–11.5%, and from next year probably 13% at the top end. In my view, that is the main source of revenue for the Balearics. With every property transaction, the island government opens its pockets very wide. In a way that is unfamiliar to us even in Germany. These revenues would of course decrease massively. And construction activity—which by now consists to a massively increasing extent of renovations of existing properties—would also decline. Along with the entire chain reaction that would then follow.

It pains me to say this. But honestly, the North Tyroleans do it better. Who, in a somewhat label-switching way, call themselves Tyroleans. They came up with what is known as a second-home designation, of which only relatively few houses or apartments have it. And only there is a person allowed to live who does not have their primary residence. Has it worked? No, it has really only created legal uncertainty, and most southern Germans still plunged into the madness of ownership without legal certainty if they could afford it. And the business-savvy North Tyrolean usually ignores his neighbors who are absent for 11 months, because he knows that this is how the region’s income is generated. But how did the Austrians manage to solve the problem of affordable housing?

They designated building areas that were created for people and families working in the region. There, land prices are affordable, and the buyer has to live with a corresponding long-term designation for decades. Did that solve the problem? Certainly not completely, but it is a good concept. Because it creates solutions going forward. And doesn’t just prohibit things.

To solve the housing shortage, there is only one sensible answer: build! It’s that simple—and so far it has not happened to any significant extent. And this runs through pretty much all governments. Housing construction packages are promised, social housing is announced.

This housing would have to be purpose-bound. Not only social housing, but simply good residential areas that, due to affordable land, are affordable also for residents to build up ownership. Not only for renting.

But as long as governments remain in dull inaction, they then have to adopt populist measures that everyone knows will not achieve their goal.