How vulture funds are worsening Spain’s housing crisis

What are vulture funds?

Vulture funds is the phrase coinedto describe investment firms which buy up depreciated assets to later make a big profit from them. In Spanish they’re known as fondos buitre.

READ ALSO – Spanish Words of the Day: Fondo buitre

Why do they invest in housing?

With a huge deficit in property currently in Spain, housing has become a commodity and as such is very profitable. Vulture funds aim to maximise profits in any way they can and often using techniques such as buying entire apartment blocks, raising rents and evicting anyone who can’t pay the rates they set.

They buy large numbers of properties, both vacant and occupied. Often they’re getting deals on bank-owned properties and then sell them or manage them at much higher prices.

How big are vulture funds in Spain?

The latest stats from Spain’s cadastre register show that there are 263,619 private companies that own property in Spain.

Each of these have an average of 4.1 residential properties each.

In total, more than a million properties are owned by these large companies, equivalent to 4 percent of Spain’s housing stock.  

In large cities such as Madrid and Barcelona, however, this can reach around 10 percent.

There are 562,513 companies that own more than 10 properties. This is compared around 178,000 homes owned by private landlords who also own more than 10 properties.

The main investment fund operating in Spain is the American firm Blackstone, which is the country’s largest property owner with nearly 30,000 rental properties.

It’s important to note though that these statistics do not reveal what each property is being used for, so we don’t know if it’s for a business, a residential rental, a tourist rental, an investment or in fact used by the company itself.

According to estimates from the Bank of Spain, however, private legal entities own around 8 percent of the main rental home market in Spain while individuals hold the remaining 92 percent.

READ ALSO: Blackrock and Blackstone – The ‘unknown’ multinationals controlling Spain

What effect are they having on the housing market here in Spain?

As most of the more than 1 million properties investment firms own in Spain are being rented out, these companies can greatly influence the market both nationally and locally. 

If they buy a high number of properties in a neighbourhood, which also happens to have limited rental stock, rents can easily be driven up.

Vulture funds typically raise the rent when they buy up buildings and force tenants to pay more or to face eviction.

READ ALSO: How privatising 2.7 million public flats caused Spain’s housing crisis

While investments are made in properties, the companies are rarely investing in neighbourhoods and services, so improvements to Spanish barrios are not necessarily being made, despite rents still increasing.

Vulture funds also find a way of skirting around the rental laws by offering temporary contracts, co-living spaces or other services so that they’re not pure residential buildings.

Currently in Spain there are no laws limiting the number of properties these large companies can own.

What are the possible solutions?

The government’s junior coalition partner Sumar introduced a bill which aimed to prohibit companies and investment funds from buying homes.

It was rejected in Congress last November and again this September by parties such as the People’s Party (PP), far-right Vox, and Junts, while Socialist Party (PSOE) and the Basque Nationalist Party (PNV) abstained.

With protests across Spain and hundreds camped out in central Madrid, the under-pressure PSOE-led government is now looking to limit real estate speculation by these companies through taxation, in a decree it hopes to pass on Tuesday September 29th.

This would potentially change taxation for listed companies dedicated to the purchase and rental of real estate, raising it from 15 to 25 percent. There are exemptions if the properties are designated for affordable rental.

In an interview with news site Cadena Ser, Javier Gil, a research sociologist at the Spanish National Research Council explained that first thing that should be done against vulture funds is to eliminate their tax “privileges”. 

“In Spain, an investment fund that buys, rents, or sells housing pays less tax than any individual listening to us for doing the same activity.”

Secondly, he says, they should be prevented from buying residential properties. “This would not only affect them, but also all those investors who seek to invest in housing as a business, like someone who invests in the stock market or cryptocurrencies, but who are not looking to buy a home to live in.”

According to him, this measure has been successfully implemented in countries like Canada and the Netherlands.