Property Lettings Boom

So the property boom has ended… or has it?  It may be that the values of property have come down, but people still need to live somewhere, recession or not.  As buyers wait until the market picks up (and they can purchase property at a higher price), property lettings are having their own boom on Tenerife.  With the rise in the number of people coming to Tenerife to escape the recession in the UK, rents have been rising above inflation in the Canaries by 3.7%, one of the highest growths in Spain, while the population has continued to increase.

There are three types of rentals in Tenerife: holiday rentals, short term (less than one year) leases and long term lettings.  All three sectors are enjoying a boom time at the moment. 

According to a survey from rental portal Holidaylettings.co.uk, some 43% of international holiday homeowners on its site had entered the lettings market recently, compared to 30% the year before.  The Canary Islands have seen a substantial growth of 52%.  The renewed interest in rental is largely prompted by the potential returns and income potential as more and more owners look to offset their mortgage and maintenance costs. 

The growth in short term (por temporada) rental is slightly more difficult to quantify as these contracts are not necessarily officially registered, however they constitute a substantial sector of the market. Credit restrictions, uncertainty and unemployment create more demand for rental, while favourable tax conditions on rental income and a slowed housing sales market stimulate supply. 

The usual day-to–day running costs, local taxes, repairs and maintenance, managing agents’ fees and commissions, interest on loans for purchase or improvement and depreciation of 3% per year of the cost of the property can all be knocked off the rental income to reach a much smaller net income.  Residents of Spain are taxed on only 50% of their net rental income, making property letting a highly tax efficient form of investment.

A non-resident is taxed in Spain on income arising from Spanish property at the rate of 24% on the gross income without any deductions for expenses or interest costs. It is the tenant who is meant to withhold 24% from the rents and file a tax return to submit the tax to the Spanish tax authorities, although in the case of short holiday lets the owner or agent would in practice take responsibility. 

Tenants benefit from new tax laws which allow them to deduct 10.05% of the rent paid if it is their main home, provided their taxable income is less than €24,020 per year.  According to information from Arrenta, a private organization that promotes rentals in Spain, one million more families need to find a home each year, and resort massively to rentals. The organization predicts that the size of the rental market will increase by over 30% this year.