2023-07-06 07:49:47
The recent approval of the Housing Law, and the decrees to fight against the economic effects of the War in Ukraine, include a limitation to rental contracts: annually, in the renewals, it will not be possible to increase more than 2% in 2023, 3% in 2024 and it must be the National Institute of Statistics that defines, before December 31, 2024, a new index, “with in order to avoid disproportionate increases in the rent of the lease contracts”, which will serve as a reference from 2025.
Before the entry into force of these regulations, the Urban Leasing Law (LAU) referenced the rent to the Consumer Price Index (CPI), the indicator that measures inflation in the Spanish economy. The caps on prices proposed by the Executive were intended to prevent inflation in the economy from being transferred to the rental market and thus avoid second-round inflation.
However, this mechanism is no longer necessary, at least for this month, because the CPI for June was lower, at 1.9%, than the existing limitation on rent during 2023, which is the Competitiveness Guarantee Index (the CPI limited to 2%). Sources from the Ministry of Transport, Mobility and Urban Agenda explain that, during this year, the lower of the two will be used, which “is good news to contribute to price containment, in this case of rents.” The Competitiveness Guarantee Index closed June at 4.65%, although capped at 2%, so the valid index to update lease contracts, at least during this month, is the CPI, below 2%.
“In the event that inflation is less than 2%, in 2023, or 3%, in 2024, the reference to renew the contracts is the one that is lowest of the indices. If the contract does not specify the reference index or methodology for updating the rent, the Competitiveness Guarantee Index must be used, as stated in the Urban Leasing Law. But in any case, the Law also indicates that it may not exceed the percentage variation of the CPI,” these same sources add.
What will happen after 2025?
What will happen after January 1, 2025 is the big unknown. The real estate sector has criticized in recent months that the Housing Law does not provide certainty in this regard, warning that if investors do not see long-term stability, they will not develop new projects in Spain. This especially affects public-private partnershipswhere the administration grants land to private companies to build rental housing at affordable prices, a long-term investment, over 50 years.
On the other hand, the Catalan university Esade also warned that “there is a risk” that the government in charge tries to influence the definition of the indicator, when it has to be designed, creating “an index that does not adequately reflect the reality of the housing rentals and that does not benefit either owners or tenants”. Some voices from the public and private sectors point out that the National Institute of Statistics could choose to re-reference the contracts to the CPI o create an index similar to the Competitiveness Guarantee Indexwhich, instead of being capped at 2%, is at 3% or 4%.
#slowdown #inflation #renders #governments #rent #increase #ceiling #effect