The last word I heard from the lips of our elderly Spanish neighbour who lived alone above us was him shouting “Viva!” after Real Madrid won the Champions League final in 2022.

The next day he died. What followed highlights the transition from the old to new Madrid. Within weeks his family sold his flat, in the centre of the Spanish capital, to a Russian lawyer for over €1 million. The Muscovite, who renovated his purchase extensively, is seldom in residence.

He has another home in Alicante but I doubt he is tax-domiciled in Spain. He represents a trend of non-resident wealthy foreigners buying up property that has contributed to rising house prices in Madrid, where rents have risen by 60 per cent in the past decade.

People eating and drinking at a bustling market cafe.

In Madrid, foreigners buying up property has led to rising house prices

GETTY IMAGES

We rent the flat we live in, alas. Owners are rubbing their hands with glee. But the housing crisis has become a hot-button issue, with anger breaking into huge protests in Madrid and Barcelona. The country has a shortage of some 600,000 houses, according to the Bank of Spain. The rapid growth of tourist rental flats, driving local residents further from urban centres, has also sparked protests from Malaga to the Canary Islands.

Caught off-guard by discontent about rocketing property prices, Pedro Sánchez, the Socialist prime minister, seized back control of the political narrative this month by announcing a 100 per cent tax on property purchases by non-residents who are not from the EU.

Sánchez also revealed plans to raise taxes on holiday rentals so that they pay “like a business”. The measure would be based on a new European Union directive on value-added tax for digital platforms. “The West faces a decisive challenge: to not become a society divided into two classes, the rich landlords and the poor tenants,” Sánchez said.

The proposed tax on foreign buyers prompted headlines around the world, not least in the British media, which reported that Spain was sending a clear message that Britons were not welcome. A few days later Sánchez told his party faithful in a meeting in the Extremadura region: “We will propose to ban these non-EU foreigners who are not residents, and their relatives, from buying houses in our country since they only do so to speculate.”

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Aides played down the ban as fanciful. Economists dismissed the effectiveness of such curbs in assuaging the housing crisis and called them populist. They also pointed out the unlikelihood of the prime minister being able to pass such legislation. So is it pure bluster to distract from the problems facing Sánchez’s effectively paralysed minority government?

And what do Spaniards think about the proposals? Is there really hostility towards British property buyers?

A straw poll of people in my neighbourhood suggests that the majority do not think that the proposed restrictions on foreigners are commendable. “Spain is once again tying itself up with tonterias [stupidities] instead of building more houses,” said Miguel Angel Montero, 57, an insurance broker. “If foreigners want to bring foreign currency into Spain in exchange for bricks we should be happy. In France, Greece and Italy they are rubbing their hands with Spanish idiocy.”

A few, however, point to housing prices in tourist areas such as Mallorca where foreign-owned holiday homes are legion. “They should have imposed special taxes on them long ago,” said Pilar Arriaga, 49, a graphic designer. “It may not affect the housing market but it will affect the state’s coffers, our dignity and security.”

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In Madrid, it is Latin Americans and not British buyers who are snapping up expensive bolt holes. But in Spain, in the first half of 2024, British non-residents were the dominant nationality among non-EU buyers with a market share of 37.9 per cent, according to data analyst Spanish Property Insight.

Anti-UK sentiment, however, does not appear to be raging. “Spaniards should go to the UK so they can have a house and a job and make a life for themselves,” quipped Alejandro Barbero, 54, a marketing executive from Malaga, observing that Spanish salaries are low. “If they retire they can return to Spain as rich foreigners.”

José García, an economics professor at Pompeu Fabra University, said the effects of the curbs on foreign buyers would be minimal. Data from Spain’s notary’s office shows that in the first half of 2024, non-EU non-residents bought only 2.5 per cent of all the houses that were sold. García and others question Sánchez’s figure of them representing 4 per cent.

“The data shows that non-resident buyers from outside the EU play a minor role in the Spanish housing market,” said Mark Stucklin, the founder of Spanish Property Insight. “Their market share is small and declining, and they focus on the Costas, well away from areas experiencing the housing crisis.”

Sánchez playing to the gallery is nothing new. It seems that his proposal may serve as a useful distraction alongside his nebulous “democratic regeneration” policy and the 100 events planned this year to celebrate the 50th anniversary of the death of the right-wing dictator Francisco Franco.