Spanish leader's opponents say 'xenophobic' foreign homebuyer tax will not be applied

By Corina Pons and David Latona

MADRID (Reuters) - Spanish Prime Minister Pedro Sanchez's opponents on Tuesday said a proposed tax on property purchases by non-European Union residents was "xenophobic" and they would not apply the levy in the regions where they govern.

"The problem is not that people want to live in Spain, the problem is that there is a lack of housing," said Luis de la Matta, director of communications of the People's Party (PP).

"We are not going to facilitate a xenophobic measure".

Resolving a housing crisis has become one of Sanchez's most pressing challenges amid a chronic shortage of affordable homes and rising rents.

His Socialist government said on Monday it would limit the purchase of homes by non-EU residents by increasing the tax they have to pay by as much as 100% of a property's value, pointing to similar schemes in Denmark and Canada.

The tax increase would need approval from a fractured parliament and would be applied by Spain's regional governments.

The PP governs in most of the regions popular with British and Latin American buyers of second homes such as Andalusia, Valencia, the Canary Islands and the Balearic Islands.

The tax would be applied through a so-called Property Transfer Tax (ITP) and would affect as many as 26,000 second-hand properties located in large cities and coastal areas popular with tourists, a Housing Ministry source said.

Spanish real estate platform Fotocasa said the measure may discourage foreign investment but its effectiveness was questionable since only 2% of Spanish homes are purchased by non-EU residents.

Homebuyers in Spain currently pay between 6% and 13% ITP tax, depending on the region.

Housing Minister Isabel Rodriguez on Tuesday challenged the government's opponents to scupper a plan that she said would boost the supply of homes.

"If someone wants to put a spanner in the works, they will have to answer to the people," Rodriguez told a press conference.

The Catalonia Tenants' Union said most of the foreign buyers in the region were from the EU and described the measure as "grandiloquent but irrelevant".

(Reporting by Corina Pons and David Latona; additional reporting by Emma Pinedo and Joan Faus; Writing by Charlie Devereux)