New Hope for Canary Islands Housing Crisis
Recent changes to the Canary Islands Special Economic Zone (REF) have reintroduced the ability to use the Canary Islands Investment Reserve (RIC) for the construction or purchase of affordable rental properties. This move is a direct response to the archipelago’s severe housing emergency. However, fiscal expert Salvador Miranda warns that these changes will not be fully effective unless certain technical aspects that hinder access for small and medium-sized enterprises (SMEs) are corrected.
Expert Insights on the Reform
Salvador Miranda, a tax advisor and director of the REF Chair, acknowledges the positive intent behind the reform, which came into effect on July 28th. He notes that it is still too early to gauge its effectiveness. The measure was launched after intense political, economic, and legal debate in both the Canary Islands Parliament and the Spanish Congress. The regional government championed it as a way to channel private investment into the affordable housing sector.
Navigating Political Consensus
The reform was approved after months of negotiation with the Finance and Housing ministries. It overcame reservations from several parliamentary groups concerned that RIC funds could be diverted to the speculative real estate market. To reach a final consensus, strict conditions were introduced. These include the exclusive use of properties for long-term residential leases, a mandatory minimum rental period of five years, and a prohibition on using the homes for tourist or holiday rentals.
A Long-Awaited Return
This revival of the RIC for housing investment comes 18 years after it was eliminated in 2007 following the Spanish property bubble. “I think it’s positive that it has been reintroduced as a temporary measure,” Miranda states, “because there is a crying need for housing in the Canary Islands that the Administration has failed to address for decades.”
The SME Accessibility Problem
Despite the potential, Miranda points out that adjustments are needed to ensure that SMEs, which form the backbone of the Canarian business sector, can access these investments, rather than just large corporations. He expresses serious technical doubts about the application of the RIC regulations for housing, particularly regarding employment requirements that effectively block SME participation.
The Employee Requirement Hurdle
A key problem identified by Miranda is the legal obligation to have at least one employee for rental activity to be considered an economic activity eligible for the RIC. For years, courts allowed some flexibility, recognizing that the presence of an employee should not be decisive if genuine economic activity could be proven. However, the current wording of the law reintroduces uncertainty. “The system does not seem to be designed for small companies, but for large ones,” he warns.
For a small company with, for example, ten apartments, hiring a full-time employee is not cost-effective. Furthermore, if they do hire someone but that employee doesn’t have enough work because the rentals are long-term, the courts could still annul the RIC tax benefit by ruling that no real economic activity exists.
Limitations on Outsourcing
Additionally, if the entity funding the RIC has a small portfolio of properties, it cannot outsource management services and is forced to hire at least one full-time person to handle the rentals. This requirement disproportionately affects smaller businesses. Large companies, with their larger property portfolios, can more easily justify hiring in-house staff and outsourcing management, making the requirement less of a burden for them.
Risk of Limiting the Reform’s Impact
Miranda emphasizes that the practical effect of this rigidity would be to limit the benefits almost exclusively to large companies. This would reduce the potential for small business owners and SMEs to contribute to increasing the supply of affordable housing in the Canaries. “This is not a panacea. This option will work for some companies and not for others. But the more entrepreneurs who get involved in this effort, the more housing will come onto the market,” he affirmed.
A Call for Legal Clarity
To achieve this, Miranda insists it is essential to provide legal certainty from the outset. He believes an official, uniform interpretation from the Spanish Tax Agency (DGT) is necessary to eliminate the existing doubts about the practical application of the reform. “If even I don’t see it clearly now, imagine what will happen when a small business owner tries to apply it,” he emphasizes.
Potential for Market Transformation
Despite the challenges, Miranda recognizes the value of reintroducing this RIC investment possibility. He highlights that the Balearic Islands are even looking to copy this new provision for buying and building rental housing within their own Investment Reserve (RIB), inspired by the Canary Islands’ model, as the Mediterranean archipelago suffers from a similar housing crisis.
The expert believes that investing reserves in housing could revitalize the market given the current shortage. If the obstacles for SMEs were cleared, a realistic calculation suggests that around 500 million euros could be mobilized through this scheme. Assuming an average housing cost of 300,000 euros, the materialization of these funds could add between 1,000 and 1,500 units to the housing stock, he noted.
