EU's Proposed 100% Property Tax on Foreign Buyers: Housing Market Impact

January 15, 2025: Spain is moving to impose a 100% property tax on homes purchased by non-EU residents as part of broader efforts to combat its deepening housing crisis. Prime Minister Pedro Sánchez announced the proposal, targeting foreign investment in the real estate market, particularly in popular tourist cities like Barcelona and Madrid. This move coincides with the government’s decision to dismantle its “golden visa” program, which allowed wealthy foreigners to gain residency through property investments.

Foreign buyers, particularly from China, Russia, and the U.S., have been driving up property prices, often purchasing homes for short-term rentals on platforms like Airbnb. In 2024 alone, 27,000 properties were acquired by non-EU buyers. This surge in foreign ownership has pushed housing prices beyond the reach of many locals, exacerbating Spain’s housing shortage.

The proposed tax aims to discourage speculative buying and ease pressure on the housing market. Sánchez emphasized the need to prevent Spain from becoming a society split between wealthy property owners and struggling tenants. While specific implementation details are pending, the measure is modeled after similar policies in countries like Canada and Denmark, where restrictions on foreign ownership have been introduced to protect local housing markets.

Spain is not alone in this shift. Portugal ended its real estate route to residency in 2023, and Ireland also closed similar programs. These changes reflect growing concerns over housing affordability and potential money laundering risks tied to unchecked foreign investment.

However, this aggressive tax policy could have unintended consequences. It may reduce foreign capital inflow into Spain’s property sector, potentially slowing construction and harming industries reliant on real estate development. Additionally, foreign investors could redirect their capital to more welcoming markets like Greece, Italy, or Costa Rica, which continue to offer favorable residency-by-investment programs.

If implemented, Spain’s policy could set a precedent for other EU nations grappling with housing affordability. Balancing foreign investment with housing accessibility will be critical to ensuring economic growth without compromising residents’ ability to find affordable housing.