The Spanish government approved last Friday a series of measures aimed at stimulating the property market. Among them a 50% tax exemption on the Capital Gains obtained from the sale of properties purchased from now until 31 December this year, provided however there is no family connection between the parties.

That measure, which intends to bring dynamism into the housing market, and encourage investment in real estate to reduce the oversupply of bank-repossessed properties, took effect the very next day with its publication in the B.O.E. (Official State Gazette) and the exemption applies to Income Tax, Income Tax of Non Resident and Corporate Tax for the year 2012.

Further the Government approved a draft law amending the Rent Act as well as the Civil Procedure Law, and containing a series of measures to encourage and boost the housing rental market, a rather rigid market and much less widespread than in other European countries (only 17% of the flats are rented whereas the ownership rate is 83%). The draft bill – which also includes tax incentives both for resident and non residents, with a view to stimulate the renting of flats belonging to non residents – is designed to encourage the renting of empty houses and flats (estimated in 3 million whereas 1, 8 million homes only are occupied on a rental basis.). Thus, 60% of the rental income will be exempt from paying income tax in Spain. It also contains a series of measures tending to make the lease terms more flexible, improve legal security by making simpler and speeding up eviction proceedings in case of non-payment of the rent, achieve a better balance between the rights of owners and the so far overprotected tenants, making it easier for owners to recover their flats if they need them for family or other reasons, and favouring direct agreement between the parties, for instance regarding the yearly update of the rent amount or other matters.

Those measures should not only induce non resident owners with empty flats to put them up for rent but one can expect that investing in properties in Spain with a view to rent them will become still more attractive through the increased flexibility and legal security for the owners.

As to the tax exemption on Capital Gains for the future sale of property that has been purchased until the end 2012, it will surely stimulate the demand, and it is an important aspect to take into consideration for those who are interested in buying a property, but have not yet decided when, as it could bring important future savings.