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Spanish Government looking at the possibility of Increasing Property Tax by 50% for Unoccupied Property

Added: (Wed Jan 24 2007)

With property values still rising by almost 10% annually(9.6% on average in 2006), the Spanish government is studying the possibility of increasing property tax by 50% for properties that are permanently unoccupied. Regional government in the Basque country and Catalonia are considering more drastic measures still. With in the region of 3 million permanently empty properties in Spain a political consensus has been reached between Spain's two principal parties namely the governing socialists (P.S.O.E) and the right wing opposition (P.P.). It is estimated that anywhere between 1 in 7 and 1 in 8 properties are permanently unoccupied. The idea being that by attempting to bring a significant proportion of these empty properties onto the market, property price inflation can be tackled ; it is presently running at 3 times the rate of inflation.

Property Tax is levied on both residents and non residents at a rate of 0.5% for urban property and 0.3% for rural property. The property tax rate is levied on the tax value (valor catastral) of the property. Given the boom in the Spanish property market over the past decade these tax values have not kept up with property price inflation.It is not uncommon for these values to be less than 50% of the market value of the property. The property tax is collected by the local town hall and goes towards local council expenditure such as education, street and beach cleaning etc.

The idea of taxing owners of permanently unoccupied property was originally introduced in 2002 by the right wing Partido Popular who were then in power. What proved to be a stumbling block was the issue of how to define a permanently unoccupied property especially given the fact that 1 in 4 Spaniards have a second property which is usually used as a summer house. Water and light consumption was proposed as a measure of deciding whether a property was occupied or not. This brought to the fore the image of thousands of Spaniards with unoccupied property scurrying to their properties to turn on the water taps and lights.

The present Spanish Economics Minister, Mr. Pedro Solbes looked at other jurisdictions both in the E.U. and further afield in an attempt to gain some guidance regarding the issue of how to adequately define a permanently unoccupied residential property. Unfortunately Mr. Solbes was unable to find any similar legislation in other jurisdictions.

Regional governments in both the Basque Country and Cataluña are intent on coming to grips with the problem and are studying the possibility of charging owners of permanently unoccupied residential property €9 per day in year one rising to €12 per day in year 2. The Cataloñian government learnt from the 2001 census that there were a total of 452,921 permanently unoccupied properties in Cataluña. These properties represent a possible tax take of €1.487 billion if the daily tax charge were introduced.

Access to property is becoming an increasingly sensitive issue in Spain with 1 in 4 under 35s citing it as of deep concern to them. While access to housing is a Constitutional Right albeit inspirational as opposed to subjective, there is a growing feeling that the powers that be must do something to alleviate the problem. The problem becomes all the more glaring when one learns that on average 50% of Town Hall (local government) incomes come from the rezoning of land.

Given the significant land bank that the Spanish government both national and regional have, allowing young people the option of initially renting government built housing while at the same time giving them the option of buying the property at some stage in the future whereby all rental payments would contribute to the final purchase price if the tenant were to decide to finally purchase the property would be an option.

Article by Dermot Quinn, Valencia Property Hound Ltd