Return to indirect taxation in new models of real estate investment. Growers vs branded residence

Having finished 2025 with a rental housing deficit of "-33,400" homes, investors are starting 2026 with a strong appetite for living models such as Build to Rent (BTR), Flex Living, Coliving, Purpose Built Student Accommodation (PBSA), and student residences, where gross yields can vary, depending on the project, between 3.75% (BTR prime) and 8% (Coliving). Investors such as core funds, insurance companies, family offices, and even developer-operator platforms will negotiate this type of alternative investment in real estate development.

These types of investments, which focus on the importance of location, management, and price over brand, contrast with another emerging model, the branded residence, which conceptually is a residential property linked to a hotel or lifestyle brand, generating significant initial returns linked to the sale of the property's units, but also involves important fees related to its operation or management.

Moreover, why don't we talk about indirect taxation, particularly VAT, or, in other words, why is it important to "structure" and define the indirect taxation of all these so-called alternative real estate investment models? Because it is not the same to carry out a 'standard' BTR, where there would be no VAT, or a Flex Living with complementary services from the hospitality industry, where VAT would apply, or a branded residence operated in association with a hotel brand, where, precisely, with its rental, additional services provided by the hotel brand are offered, where VAT will apply, or an independent residence, which conceptually will be more similar to a traditional rental and hence without VAT. Well, far from the simplicity or complexity of the previous, our European legislator, arbiter and judge of these new models, introduces the concept of VIDA, which is nothing more than the acronym for VAT in the Digital Era.

Far from providing certainty or reverting with respect to VAT, our European Commission, with its monopoly on legislative initiative, has deemed it appropriate to request that all its member states transpose into their internal legislation, before July 1, 2028, that short-term rentals, defined as less than 30 nights, be subject to VAT.

For all the reasons mentioned and for those yet to come, tax advice is a key issue for all these alternative models of real estate investment.

Article by Francisco Javier Iniesto, tax partner at ECIJA Madrid.