A plan has been put forth to amend the REF, requiring approval from Parliament, with the goal of targeting empty or underdeveloped properties
SANTA CRUZ DE TENERIFE, 14 June (EUROPA PRESS) –
The Deputy President and Minister of Economy, Industry, Commerce, and Self-Employed of the Canary Islands, Manuel Domínguez, announced on Friday the intention to activate the Canary Islands Investment Reserve (RIC), a powerful tax incentive under the Economic and Fiscal Regime (REF) of the archipelago. This move aims to “assist in alleviating the housing shortage in the islands” by stimulating private sector investments in rental housing.
During a press briefing alongside the REF Commissioner of the Canary Islands, José Ramón Barrera, Domínguez highlighted that this initiative through the RIC seeks to direct investments from local businesses and self-employed individuals into the real estate market, amounting to approximately 2,000 million euros, which are currently in the pipeline, as reported by the Tax Agency.
“While this isn’t a standalone solution to the issue,” emphasised the Deputy President of the Canary Islands Government, he is optimistic that “this REF incentive could swiftly enhance the rental property supply, which presently remains inadequate, enhancing the quality of life for families and youth residing in the Canary Islands who face restrictions in their job mobility and personal growth due to the exorbitant cost of housing, putting a strain on their household finances.
The Canary Islands rank as the second Autonomous Community, after the Balearic Islands, where rentals have a significant market share, representing 28.5% of the total, according to the latest Living Conditions Survey by the National Institute of Statistics (INE).
Highlighting the mounting financial burden on tenants on the islands, with rental payments consuming almost half of family incomes, surpassing the recommended 30%, the Bank of Spain has issued warnings.
Contrary to abating, the trend of escalating prices persists, rendering rents unaffordable for the majority, as stated in an official communication by the Executive.
The limited housing supply has resulted in a 13% surge in rents over the last year, placing the islands among the top four Autonomous Communities with the highest rental costs, alongside the Balearic Islands, Madrid, and Catalonia.
This predicament is particularly troubling for the Executive given that the archipelago also records some of the lowest salaries regionally.
The Deputy President anticipates that “this boost to private investment in the real estate industry will catalyse a shift in the trajectory, tempering rental prices and introducing vacant homes back into the market, either through refurbishment of outdated properties or completion of unfinished constructions.”
In discussing the application of the RIC to residential rentals, the REF Commissioner explained that this provision existed until 2006 when it was discontinued “under the misguided assumption that it was negatively impacting prices, disregarding the widespread price hikes occurring across the country, even in areas without tax incentives.”
According to the regulations governing the RIC, residential housing investments must be retained for at least five years, laid out Barrera.
INTENDED FOR PRIMARY RESIDENCE
Furthermore, to bolster the legal surety of the initiative, the reform proposal will recommend enforcing the condition that the property must be promptly rented out for residential purposes and serve as the primary residence of the occupant.
The Canary Islands Investment Reserve facilitates SMEs, constituting 97% of the local business landscape, and over 140,000 self-employed individuals on the islands, in securing tax reductions of up to 90% in corporate tax and 80% in personal income tax. This measures aims to encourage them to primarily allocate their profits towards expanding or modernising infrastructure and equipment, and creating employment opportunities.
Per the Constitution, the process will commence with a favourable assessment from the Autonomous Community, which will then be presented to the national government.
Furthermore, the reform proposal will be passed to the Parliament of the Canary Islands for deliberation and voting, moving forward only with the support of two-thirds of the regional parliamentary representatives.
REVAMPING THE REF
Barrera underscored the necessity to “modernise and enhance the flexibility of the REF” to align with changing societal and economic demands.
He recalled that although the RIC was previously applicable to tourist accommodations, its usage was banned in 2018 due to efforts to curb the sector’s rapid expansion amid growing concerns.
The reform also introduced five years ago the option for businesses to invest their earnings in sectors having a significant social impact, such as the promotion of social housing intended for rentals, socio-health institutions, nursing homes, and geriatric facilities.
As per the INE Population and Housing Census, the Canary Islands possess a housing stock of 1,088,700 residences.
The study underscores the surge in rental demand over the past decade, particularly in Santa Cruz de Tenerife, where the proportion has spiked by 50%, from 16% to 24% of properties. A similar trend is observed in Las Palmas de Gran Canaria, where the percentage jumps from 16% to 22%.
Enlarging the housing supply necessitates fortifying the inventory of low-cost rental dwellings, wherein there are 211,331 unoccupied homes, accounting for 18% of the total stock, as highlighted by the Government.
Additionally, there are 25,829 properties occupied only one month a year, while 83,722 remain in use for one to three months.
