Limitations to Investments in Real Estate: Some Controversial Policies in Spain—The Example of Catalonia

Víctor de Castro Esteller

Taxation of buildings usually depend on their use (commercial or residential). A commercial building is an input into the production process like other types of physical capital, so the taxation should not influence them.

In most cases, residential property is regarded as an investment which should ideally be taxed as other investments to achieve tax neutrality. In this regard, some governments decided to tax properties deemed empty. For instance, in Spain, the Catalonia Parliament approved taxation on unoccupied homes located in cities where a high residential demand exists, like Barcelona.

The taxable houses are those owned by corporations and unoccupied for more than two years. There is an exemption for the first 150 square metres and the amount to pay will be determined by a progressive tax scale from EUR 10 to EUR 30 per square metre.

Besides the taxation, there are some other polices that could interfere in the real estate market. In this regard, Catalonia was the first region in Spain to establish a threshold rental income. Although the Constitutional Court could repeal that Law in the future, it went into force some months ago to limit the rental income on the new contracts.

Nowadays, the Spanish Federal Government is preparing a new regulation on the rental market, but they would rather establish tax reliefs for landlords than limitations to the rental income. Other EU members have already limited rental income: The Netherlands, France, Germany, Italy, and Sweden.

Both policies (taxation and limitation) are examples of regulation of the real estate market in OECD countries. However, there is no evidence to consider them effective for social purposes, as politicians said. In fact, for the moment, they represent a barrier to keep houses as profitable as these investments were in the past in Spain.


XLNC MAGAZINE | No. 07 | Spring 2021

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