The announcement from the Spanish Ministry of Foreign Affairs this Wednesday is like throwing a bucket of cold water on a boiling stock market. While the island council is popping champagne corks to celebrate record revenues, the central government in Madrid has decided that enough is enough of southern Gran Canaria being Europe's private Monopoly. The proposal sent to Brussels to restrict home purchases by non-residents is an implicit admission that tourism's success has cannibalized the right to housing.
If the European Commission approves this reform, the south of Gran Canaria will experience a seismic value adjustment. Real estate assets could cease to be "liquid gold" for investors in Frankfurt, Oslo, or London, perhaps providing some relief to residents, but raising doubts about whether the "record-breaking revenue" model can be sustained when real estate capital decides to seek greener, less regulated pastures.
It's almost poetic: we want domestic tourists to come more and spend more —the famous 136 euros per day—, but we are asking the European Commission for permission to put a padlock on the door if they decide that, after their stay, they would like to keep the keys to the house.
From a financial perspective, it's an attempt to reverse the "law of the jungle" in the real estate market of a limited and fragmented territory. With one in four homes in foreign hands, the market in the islands has ceased to respond to local supply and demand, becoming instead a safe haven for foreign capital.
The government is now seeking to have Brussels use the status of an Outermost Region (OR) to make an exception to the free movement of capital, that sacred pillar of the EU which, in the case of the Canary Islands, has ended up inflating prices to the point of excluding young people and vulnerable groups from the market. It is protectionism attempting to patch up a model that has died of its own success.
This legislative maneuver clashes head-on with the sector's statistical euphoria. How do you explain to an Italian investor, part of that emerging market growing at 22%, that they are welcome to spend money in Mogán's restaurants but are prohibited from buying an apartment in the area? The strategy of "promoting mobility throughout the island" runs up against a reality where non-residential accommodation already accounts for 25% of the housing stock.
By trying to restrict the purchase of homes not intended for primary residence, the government is attempting to deflate the housing bubble without damaging the tourism bubble—a macroeconomic balancing act that rarely ends without someone getting hurt. Gran Canaria has become the laboratory for an economic identity crisis. On the one hand, there's celebration that tourists are spending like never before; on the other, there's a rush to Brussels to demand that these same tourists' access to the property market be limited. It's the ultimate paradox: we want them to spend their money, but not to put down roots.
