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Spain Woos Foreigners to Thin Its Inventory of Unsold Homes

Raphael Minder | The New York Times

Spain plans to offer residency permits to foreigners who buy houses priced at more than 160,000 euros ($203,845) as part of its efforts to revive a collapsed real estate market and divest itself of hundreds of thousands of unsold homes.

GlowImages | Getty Images

In announcing the proposal on Monday, the Spanish trade secretary, Jaime García-Legaz, said it was aimed in particular at Chinese and Russian investors who might face difficulties buying a house in Spain because they are not residents of the European Union.

Mr. García-Legaz noted that Spain was following in the footsteps of Ireland and Portugal, two other that have sought to spur their housing markets by easing residency requirements.

Spain normally grants visas that are valid for up to 90 days to citizens of countries that are outside the European Union. The residency permits for foreign home buyers would be for a much longer period of time but would not be open-ended. That detail has yet to be decided. The permits would also not grant the buyer the right to work in Spain.

The proposal is to be discussed in the coming days by the Spanish government. Asked on Monday about it, Mariano Rajoy, the prime minister, told reporters that while no final decision had been made, it was important for Spain to reduce its stock of unsold homes — "and not at the disproportional valuations of previous years."

According to government data, there are about 700,000 unsold homes on the market as a result of a property boom that came to an abrupt halt in 2008.

The bursting of the property bubble dealt a severe blow to the construction sector, which had been one of the main engines of the economy, and left the country's banks with a crippling pile of bad loans.

The banking crisis reached its peak in May, when the government nationalized Bankia, a leading real estate lender, to keep it afloat. A month later, the magnitude of Bankia's property-related losses and the collapse of other, smaller banks, led Madrid to ask its euro zone partners for a bailout of the banking sector of up to 100 billion euros ($128 billion).

Mortgage defaults have continued to climb. On Monday, the Bank of Spain said that in September the level of bad loans held by Spanish banks had reached a record 10.7 percent of their total loan portfolios, equivalent to 182 billion euros.

José Luis Suárez, a real estate specialist and professor at the IESE business school in Madrid, called the plan "a step in the right direction."

"The secondary home market in Spain could still have a bright future, but that will need to be mainly because of foreigners," he said.

Last year, housing purchases in Spain by foreigners rose 6 percent from the previous year. Purchases by Russians soared nearly 28 percent, to 1,757 units. Chinese buyers acquired 868 homes last year, up 7 percent from the previous year but only 4 percent of the total.

Miguel Hernández, a real estate specialist at the IE business school in Madrid, questioned whether the government's plan would attract many more Chinese buyers. "The Russians have certainly been busy buying in holiday areas like the Costa del Sol, but the Chinese interest seems to have been much more in industrial areas rather than for coastal or other residential properties," he said.

Hundreds of thousands of sun-seeking foreign retirees, mainly from Northern Europe, already reside in Spain and helped contribute to the property boom.

Mr. Suárez of IESE said the government needed to take other steps to attract foreign buyers, including "repair the housing distribution channel" by, for example, providing incentives for new real estate brokers. Many brokers from Britain and other countries left Spain when the property bubble burst.

Another concern, Mr. Suárez said, was lax enforcement of real estate laws. After the bubble collapsed, it became apparent that during the boom years, regional and local authorities had often approved construction of houses that violated environmental laws or other regulations.

"Housing irregularities occurred in some specific and limited cases, but it has done a lot of damage to the image of Spain, particularly among foreign buyers," Mr. Suárez said.

Spanish banks are to transfer up to 90 billion euros of nonperforming loans and other troubled assets to a so-called bad bank the government is setting up, one of the steps it agreed to take in return for the European bailout of the financial sector.

But the creation of the bad bank has prompted debate over how to value the assets so that stronger banks, private equity firms and other investors will be willing to buy them.