Why investing in Mallorca is worthwhile

There are additional laws that favor real estate investments in Spain. For example, investors who own more than eight rental properties in Spain benefit from corporate tax advantages. To benefit from this regulation, the investor does not even need to live in Spain long-term.

Today, we would like to present three reasons for investing in income-producing real estate on the Balearic island. If you are interested in pursuing an investment, our colleagues in Mallorca will be happy to assist.

1. Stable market and stable rental income

The real estate market in Mallorca is developing at a stable and high level, and it is expected that this trend will continue in the coming years.

The increase in population reflects the attractiveness of the entire Balearic region. Population growth there is among the fastest in Spain, driven primarily by immigration from EU countries. By 2030, population growth of 300,000 people is expected.

This means that demand for housing will remain high. Accordingly, there is a continuous increase in investment and new construction projects across all sectors to meet both the housing needs of the growing population and the demand of international buyers.

2. Attractive returns

Mallorca continues to be an appealing market for rental properties. While it has become more difficult to obtain new licenses for short-term rentals, there are many properties with existing vacation-rental licenses, primarily located in the north and southwest of the island.

Long-term rental yields are considered attractive (especially in Palma and the southwest) and therefore offer a compelling investment opportunity. Short-term rentals can generate even higher rental yields.

3. Realistic interest rates and cost coverage through rental income

Financing conditions in Spain remain stable. After historic lows in the early 2020s, interest rates have returned to a realistic level of approximately three percent, in line with other European countries.

For the purchase of investment properties, the same recommendation applies as for residential properties: ideally, investors should cover 30 percent of the purchase price as well as acquisition costs with equity. In addition, investors should ensure that ongoing rental income not only covers the loan payments but also generates a surplus.

There are various ways to structure loans, ranging from interest-only loans and Lombard loans to amortizing loans through local Spanish banks as well as international banks.

Tax advantages for investors who want to live in Spain

The so-called Beckham Law is attractive for investors who plan to live in Spain long-term. The Beckham Law is a Spanish tax regulation introduced in 2005 that allows foreign employees to be taxed according to Spain’s non-resident income tax framework. This means they are taxed only on the income earned within Spanish territory and not on income generated elsewhere while living in Mallorca.

Tax advantages also for investors who do not live in Spain

Real estate investors who do not intend to live in Mallorca long-term can also benefit from tax advantages. For these investors, it may be advantageous to establish a real estate company that manages their rental properties.

Based on Articles 48 and 49 of the Spanish Corporate Tax Act, companies whose primary economic activity is the rental of residential properties located in Spain may benefit from tax incentives. Certain conditions must be met, such as owning more than eight residential units that are rented out or offered for rent. Additionally, the properties must be rented out or offered for rent for a minimum of three years.

For this, consult a specialized law firm or tax advisory firm.