The Executive will rush the deadline to send its Stability Plan to Brussels, in which a sharp reduction in the GDP estimate is expected
With inflation reaching double digits in March (9.8%) and with bleak forecasts for the coming months, the Government decided last Tuesday to include in its shock plan against the consequences of the war in Ukraine a measure to limit the 2% the maximum increase of those rentals that have to be renewed between April and June.
Of course, it will only affect the contracts that include the update of the rent according to the CPI. A measure that for some experts is a covert “direct intervention” in the rental market that, according to the general director of the Rental Negotiating Agency, José Ramón Zurdo, what it will do is “scare off the offer”.
While it is true that they understand the exceptional moment, they believe that the oxygen balloon given to the tenants could be “relative” if it goes beyond June, as the Government has already left the door open. “If interest in having a property for rent is discouraged and, therefore, the supply is reduced, prices will increase,” say the experts.
This lower profitability that the owners would acquire by not being able to update the rent to the same level that life becomes more expensive can in turn cause a decrease in the investment for maintenance. “We could have a smaller and older portfolio,” warns the director of Studies at Pisos.com, Ferran Font.
Everything would help, therefore, to create more obstacles in a market that is already stressed and whose root problem is the lack of supply. And it is that, according to the Corporate Director of Business Development of Gesvalt, Luis Martín Guirado, the legal insecurity that mechanisms such as the limitation of updates according to the CPI generates “is never beneficial, neither for owners nor for tenants”.
However, tenants who must renew their leases during this period will notice the savings. As established, when updating the rent according to the CPI, the latest index published on the contract renewal date must be used.
If it is dated May 1, 2021, the owner could raise it according to the March CPI (9.8% advance data). Therefore, if the income was 1,000 euros, it would increase by 98 euros per month, 1,176 per year. Now, with the new regulations, the rent would rise by 20 euros per month, 240 per year.
Even so, due to the few objective data that are known about this market, it is difficult to calculate the effectiveness of the measure. And the Government only has estimates. They start from the basis that there are 3.5 million tenants in Spain, but it is not known how many of them must update their rent between April and June. Nor the number of contracts that include the update according to the CPI.
Ministry sources estimate that a quarter of them should update their income in this period, so the new limitation would apply to around 900,000. All this counting, they say, “that the contracts were distributed evenly in all the months of the year.” The statement is not far from reality. “The same contracts are not signed in a month of December as in a month of March,” says Font.
That is why for Martín Guirado, although the inflationary scenario reflects high increases, “it is very unlikely that the owners would propose increases of these magnitudes to the tenants”, since “they would put the contractual relationship itself at risk and compromise the delinquency rate” .
Prudence
This behavior is reflected in the data of the Rental Negotiating Agency (ANA). Most owners were already choosing not to update rents according to the CPI. Specifically, 85% of the owners with whom they work (approximately 5,000) were not applying that total increase, but were increasing it “moderately”, around half the CPI. In turn, of that 85%, one in four owners had not directly applied it.
It is true that 15% had done so. A decision, according to Zurdo, that can turn against the owner as the tenant cannot afford the rent. Therefore, he would have to find a new tenant and be a few months without income. In addition, he would have replacement costs. “If we can postpone those two expenses, better profitability for the owner,” he says.
Need more offer
The Royal Decree approved by the Government and in which the measure is included, which does not affect other types of rentals such as commercial premises, establishes that initially, in the event that the lessor is not a large holder – natural or legal person who owns more than ten properties – the increase in rent will be the one resulting from the new agreement between the parties.
It is in the absence of this agreement that the increase may not exceed the Competitiveness Guarantee index (2%). From Legálitas, they have been recommending their clients to “negotiate” since in the last months of last year inflation was already rising. But this was not happening. They did notice that there was more interest on the part of the owners to learn about the mechanism of increase established in the contract. But at no time was there a dialogue. “We observed tenants who decided to raise the corresponding percentage and others who preferred to keep the price,” says Legálitas’ lawyer, Macarena Redondo.
In spite of everything, from Gesvalt they point out that it must be taken into account that contracts have recently been signed in which up to two years of no variation in the rental price have been given. For this reason, the impact “will also be moderate”.
This situation also occurs when the rental price was already growing again. In February, according to Pisos.com, it rose 4.56% compared to the same month last year. A situation that starts from an offer “that on many occasions does not have the capacity to respond to the existing demand,” says Font.
Therefore, from the Rental Negotiating Agency they explain that what the Government must do to moderate rental prices is to bet on policies that favor an increase in the supply of rental properties. Thus, from Gesvalt they consider that the establishment of mechanisms to reduce the inflationary scenario would be a “much more effective” measure.
#updating #rent #CPI #increase #rental #prices