The limitation of the rental price on housing in Catalonia

In the last reform of the Law for Urban Rents, on May 2019, in its Second Additional Provision, in relation to the rental price index, it was stated that the Autonomous Communities could define their own reference index in a specific way and adapted to their territory, for the exercise of their powers and for the purpose of designing their own public housing policies and programs.

Consequently, the Generalitat of Catalonia has approved a Decree Law 9/2019 of May 21, published in the DOGC on 05/23/2019, of urgent measures regarding the containment of income in housing lease contracts, in order to limit the price of housing rents.

How does it work?

First of all, before a limitation of the rental prices of housing rents can be established, the areas or areas of “tense market” housing (these are the municipalities or the areas of municipalities where the supply is at risk of insufficient rental housing in affordable conditions); for this, various aspects must be stated:

• as if the growth of the rental price and its cost in the family budget is clearly higher than the average in Catalonia;
• as if that there is a disproportion between the increase in the population and the number of available rental homes, or
• as if the cost of rentals increases above the CPI of the affected area.

Once the “tense market” zone or area has been fixed, the rent of the housing lease contracts may only exceed the Reference Index of the Rental Prices by 10%. An additional increase of 5% can be allowed due to special characteristics of the house (views, community areas equipped with a garden, swimming pool, etc …).

Newly built?

Likewise, newly built and fully rehabilitated homes may be rented at 20% above those established by the Reference Index, but only for 5 years after the completion of the works.

The rent review of these leases can only be carried out if expressly agreed, and with reference to the annual variation of the competitiveness guarantee index.

The Sagrada Familia, one of the many wonderful site to see in Barcelona

Already rented?

In homes that were already rented, and when the rent was higher than the price set by the reference index that should be applied, the last rent of the previous contract can be set as the initial rent of a new contract (producing, as evidence, the amount of the last receipt).

If the lessor collects rents above the limits established, the lessee will have the right to recover the difference between the legal limit and the rent he paid, with interest. It may be required by Courts, but the Department of Justice will promote mediation and other alternative dispute resolutions systems.

As a transitional regime, it is established that leases concluded prior to the entry into force of the Decree will continue to be governed by previous legislation. In case of renewal that involves extending the duration or modification of the rent, after the declaration of the area in which the house is located as a tense market, the provisions of these regulations shall be applied.

This Legislative Decree entered into force the day after its publication, that is, on May 24, 2019.

Morning natural lights in the master work of Gaudi: the Sagrada Familia

Different sectors have already objected this regulation, real estate professionals, owners and social organizations (Sindicat de Llogaters, Tenant Association, etc.) and all agree in their rejection for different reasons, but agree that it will not solve the problem of rental prices, since it is will most probably increase prices due to a reduction on the offer and, therefore, the real expectations of limiting rental prices will not be reached.

The different sectors coincide, however, that one of the measures to contain rental prices should be to increase the offer of social leased housing by the administration.

This article is written by one of our independent partners in Spain, Juan, who is one of our Legal partners in Catalunia. Check his full profile here.

Do you want to get in touch with him? Ask us for an introduction and benefit from the power of our network.

Juan

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The long-term search for an equilibrium on the Spanish rental market

We will not refer to tourist rentals or seasonal rentals -which will also be the subject of an article later- but we will talk in this paper only about “classic” rentals that constitute the homes of families. When we analyze the situation: it is so difficult to find a balanced solution that pleases all the players.

We have spent decades with a Law of Urban Leases that protected the tenants in such a way, that there were cases in which a 300m2 apartment on the Diagonal was enjoyed for 600 “constant” Pesetas ( about € 4 today) until the death of the tenant and beyond… if there were relatives living with the deceased. I remember desperate owners, forced to change the elevator, and whose rental income did not even cover maintenance.

Then came the ‘Decree Boyer’ in 1985, and thereafter the new law in 1994, and market rents of flats became a sort of ‘Far West’, for which the new tenants had to face free prices, meagre stays and the consequent pressures before the time of renewal.
It is clear that this situation, in years of economic boom, decisively favoured the real estate market, with mortgage loans that today constitute a headache we are experiencing.

But here we are: we do not know how to find the middle term of things, letting the law of the pendulum act like an elephant in a china shop.

Other solutions in foreign countries like Germany, Austria and Switzerland

Those of us who have seen a little of what goes on outside, find with astonishment that, for example, in Germany, Austria and Switzerland, it is only a minor part of the population that owns its housing: the wealthiest, owning something exclusive properties. Most of the population lives in flats or terraced houses whose owners are investment funds or pension funds.

If the housing ceases to be a speculative good (it seems that this is not going to be the case since there is already talk of another bubble) there would be security for the stability of the housing market. Which would avoid the distortions of unpayable mortgages we have been living in recent years.
Lately, we have seen significant increases in rents, where Barcelona and Madrid have marked record highs, so we find that former owners with unpayable mortgages are in a rental market with unpayable leases, however, at the same time, we have about 3.5 million empty homes.

A new system in Catalonia?

The Catalan government tried to impose a tax on vacant dwellings, which has been suspended by the Constitutional Court. They are now trying, together with the Barcelona City Council, to reduce abusive rents through tax credits and aid to landlords who fix more modest prices. Another measure welcomed by the Catalan government is a new price index that would be applied gradually and for which, in June 2017, 27 municipalities had been taken into account, representing almost 60% of the population of Catalonia.

It is a pioneering system in Spain that is inspired by the one that has ruled Berlin for years. According to the Generalitat itself, it is an indicator of public consultation with an informative nature that allows us to know an estimate of the average price per square meter of rent for a house located in an area and with characteristics defined by the person making the query. You can find more at the following link.

The important thing is that the rates are considered fair by both the tenants and the owners, a difficult task, as each one looks at the proposed house with its own glasses. And, unlike Germany and Austria, in which the majority of rental housing is from large specialised corporations, in Spain 97% of rental housing is in private hands, according to data from Solvia, which implies more diversity of opinions. Recently I wrote about the big projects planned by large corporations that may be interested in entering this dynamic, which would settle that percentage a bit, find the earlier paper here: The new “Phoenix”: the construction of homes reborns with force in Spain.

In our opinion, a stabilisation of the housing market would provide advantages for homeowners concerning the regularity of the leases’ payments and possibly a more accessible rental market for the tenants.
If this stabilisation can sometimes mean some sacrifice concerning income, this may be offset in the long run by this regularity, as there is nothing worse than a slope housing rented for months, and especially it should be complemented by tax credits and aid.
This system could even come to reduce the need to invest in social housing, so the paradox that aid might end bonuses and might mean savings for the Spanish state.

This article is written by one of our independent partners in Spain, Juan, who is one of our Legal partners in Catalonia. Check his profile.

Do you want to get in touch with him? Ask us for an introduction and benefit from the power of our network.

Looking for another real estate lawyer in another Spanish region?

Juan

Check the full HTBIS team here

The post The long-term search for an equilibrium on the Spanish rental market appeared first on How to buy in Spain.

Real estate estimated return is back in strong positive territory

According to statistics released by the Central Bank of Spain in December 2016, the return expected on the residential Real Estate market in Spain is of 8,4%.

This performance comes from two sources: gross rent yield estimated at 4,4% and the capital gain estimated at 4%.

First real positive return since the crisis of 2008

As you can see on our chart, the estimated return became slightly positive for the second time since 2008 at the start of 2014. In 2010, the estimated return went slightly positive but it was not enough to compensate the mortgages costs. This time, the performance is much stronger as the estimated profitability of 8.4% nearly covers by more than 3 times the mortgages costs.

While the estimated profitability was slightly positive for the first time in 2010, it was not enough to compensate the mortgages costs. This time, the performance is much stronger as the estimated profitability of 8.4% nearly covers by more than 3 times the mortgages costs.

Real estate performance remains very negative on 10 years

Have a look at the comparison of the real estate market in Spain vs other European countries on a 10-year time frame

As you saw on this histogram, Spain as the weakest performance just in front of Ireland on a 10-year timeframe.

Have a look at the many reasons why we think that the Spanish market is a nice real estate opportunity right now. We bought ourselves in 2014, let’s put our money where our words are 😉 .

Another positive factor: Activity is picking up

You should take into account the increase of activity in the market by both nationals and foreigners as you can notice on this chart:

It looks like others agree with our conclusions…

Looking for an expert in Spain? Ask us directly!

Stéphane

Senior analyst and strategist at HTBIS

Check the full HTBIS team here

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