To fix housing collapse, Spain looks to foreigners
Houses of the Betis street in Sevilla, Spain. Faced with a real estate bust, Spain's government has a novel plan for shrinking the inventory of empty properties -- offer legal residency status to foreigners spending more than $200,000 on a home there.
With the collapse of Spain's housing bubble, there is a lot of property available -- for cheap. But Spaniards, wrapped up in their own financial crisis, aren't buying it. So the Spanish government is planning to offer a sweet deal to foreigners: if you buy a house for more than $200,000, you get Spanish residency.
Foreigners had been scouring the country for vacation homes even before the European economic crisis hit.
"And now, they have the same opportunities, the same properties, but up to 80 percent of discount," said Alfredo Milla, who works for the real estate arm of the Spanish bank Sabadell. Among the hundreds of discounted properties on his books is one place that was $230,000 and is now $71,000.
"This property is in a golf course, with all of the conditions to be a very good experience for the client," Milla said. "In addition to this, it's 15 minutes from the beach."
Spain's housing bubble popped in 2007, but prices have taken a while to fall. Banks own most of the property in Spain, and they resisted dropping prices as long as they could.
"They were trying to extend and pretend that nothing happened, while keeping those prices very high," said José García-Montalvo, an economics professor at Barcelona's Pompeu Fabra University.
That was then. Now, banks are trying to sell off their assets, and prices are falling fast. The first eight months of this year saw the biggest year-on-year drop in real estate prices in Spain's history. So, the government and the banks are eager for foreigners to buy up vacant property. A few years ago, foreigners trying to buy here faced a sea of red tape.
No more, says Carles Bode, a commercial property manager. "There's not a problem today to close a transaction in Spain with total safety and security."
The plan to give residency to buyers of pricey homes is attractive to visitors like Americans who, without a visa, can only normally stay here for 90 days. But foreigners from China, Russia and North Africa can't even come in without a lengthy application process. So for them, the prospect of residency and free movement within Europe seems like a great deal.
That's true for real estate companies too. They stand to make big profits in sales. But some Spaniards fear it could draw shady foreigners -- people using black market funds or money-launderers. Prof. Jose García-Montalvo has personal experience with this.
"My uncle sold a house 10 years ago to a Russian person that came with a bag with $500,000 in the bag," he said. "That's not the kind of investment you want to promote."
It's not yet certain that lawmakers will pass the new residency law. But admirers of Spain say that even if they don't, knock-down prices and the chance to spend the winter in sunshine make the land of Cervantes a great place to call home.