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In recent news, Spain has announced its intention to halt the Golden Visa program for home buyers, with the potential for the legislature to end the program later this year. The Golden Visa programs were initially introduced in various countries in the aftermath of the 2008 Global Financial Crisis to attract individuals to contribute to the local economy and address the surplus of residential real estate left after the crisis.

The Golden Visa program in Spain had a threshold price of €0.5 million for a home purchase, with other financial assets such as equities, bank accounts, and bonds also qualifying. The majority of program proceeds in Spain were from real estate purchases. Investors from China and Russia dominated the program, with many using it as a way to park excess cash offshore and avoid taxes on worldwide income by gaining residency without physically residing in Spain.

One of the main drivers behind the decision to end the Golden Visa program in Spain is the perceived inequity in tax treatment between those who gain residency through the program and other residents who are fully liable for taxes once they meet residency requirements. Prime Minister Sánchez noted that the program had created challenges in finding affordable housing for residents who live and work in Spain and pay taxes.

The Golden Visa program has been identified as a contributor to Spain’s housing shortage, along with factors such as a mismatch between new household formation and housing construction. Additionally, overseas institutional investors, including private equity firms, have been acquiring large blocks of residential properties in Spain since before the Golden Visa program began, further exacerbating the housing situation.

Private equity firms like Blackstone, Bain Capital, and others have been involved in acquiring distressed properties in Spain at discounted prices, often using credit for leverage. These properties are then renovated and rented out at higher prices, creating an inflationary credit loop that drives rents and home prices higher and pushes individual home ownership further out of reach for many residents.

Overall, the decision to end the Golden Visa program in Spain reflects broader challenges in the housing market driven by factors such as investment from overseas institutional investors, tax avoidance strategies, and the use of credit to acquire and rent out distressed properties. The impact of these trends on the housing market in Spain and other countries highlights the need for a more balanced approach to housing policy and regulation to ensure affordable and accessible housing for all residents.

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