New Law on Housing Rental in Catalonia

The new rental law establishes that the price index will be determined according to the reference index set by the Generalitat.

As specified by the Generalitat, the new law “allows the Administration to classify certain areas of the territory as areas with a tense housing market and subject leases concluded in those areas to a rent containment regime.” “Its application is excluded for leases signed before January 1, 1995, those subject to special rent determination regimes, those for social housing or social policies, and those of a welfare nature.”

In principle, this new law will only affect municipalities with more than 20,000 inhabitants, which are about 60 throughout Catalonia. Nevertheless, they account for 70% of the population of Catalonia.

Therefore, in existing rental contracts that are renewed, there will be changes. For example, contracts whose price exceeds the index must be adjusted downward, and those that are lower can be updated.

How does HORIZEN Properties evaluate the implementation of the new housing rental law in Catalonia?

HORIZEN Properties, like the entire real estate sector, including Apis, real estate agents, and developers, sees this law as a political tool rather than a solution to the rental conflict. Regulating private property instead of investing state funds in social housing is not the best formula for solving the housing access problem. What cannot be done is to regulate a market without considering any professionals in the sector, creating an ineffective tool for market indices.

How will it impact the market in general?

The anticipated effect, as warned for months, is the opposite. There will be less rental housing available, as all major landlords (some have already started) will withdraw their traditional rental properties or put them on temporary lease, which is exempt from this regulation, hoping the law can be repealed in a few months. Therefore, tenants will face less supply and more contractual instability, encountering more temporary offers, contrary to the intended rent containment.

In recent years, both state developers and large foreign investors were buying and building for rental purposes (built to rent), creating a substantial rental stock. Now, with the limitation, many may reconsider investing in Spain. Investment will be severely restricted to these indices, unrealistic, and prohibiting property owners from renting their property at the price they want or the market is willing to pay.

What effects might it have on the luxury real estate sector?

We will find that the real estate sector, with the looming health and economic crisis, will slow down significantly. Buyers are more cautious, and purchases take longer. Property owners and tenants face unsustainable legal uncertainty. Owners face a double burden: squatters, well-protected in this country, and the limitation of rents in Catalonia on private property. On the other hand, tenants are not truly benefiting from all this. Rent will be limited, but owners will pass on the expenses associated with the properties, so prices will not drop as much. All these decisions do not help a sector that is crucial for our country.

Which cases are exempt from the application of the new law?

Temporary rentals benefit greatly from this drastic change in the Catalonia rental market. Many property owners, facing uncertainty, prefer to rent for a maximum of 11 months, hoping that the law will be definitively repealed.

As mentioned earlier, the biggest loser in all of this remains the tenant, who loses all the stability that has always been sought with leases of 5/7 years modified years ago.

New construction, exempt from this limitation in its first three years, may seem like a good thing but will also be affected in the future. Investors do not view this limitation favorably, considering the “grace period” of three years insufficient, as return on investment is calculated over a longer period.

When can the price be increased above the reference index?

If, in the previous year, the landlord has carried out works that improve habitability, safety, comfort, or energy efficiency. If the property has at least three of the following features, the rent can be increased by a maximum of 5%:

– Elevator
– Parking
– Furnished dwelling
– Heating or cooling system
– Shared community areas (such as a garden or roof)
– Community pool or similar amenities
– Concierge services in the building
– Special views

Will the price of new construction rentals be limited? What effect will it have on this segment?

During the five years after obtaining the final work certificate, the agreed rent at the beginning of the contract cannot exceed the upper limit of the reference price index for rental housing with similar characteristics in the same urban environment. If public subsidies have been obtained for the execution of the works, the rent must be determined in accordance with the provisions of Article 6 (reference index) without prejudice to agreements that may be reached with the competent authorities. However, the application of the rent containment regime in the case of newly constructed homes or homes resulting from a process of major rehabilitation will take effect within three years of the entry into force of this law.

Investors do not view this limitation favorably and consider the “grace period” stipulated insufficient, as return on investment is calculated over a longer term. For the past few years, the increase in new rental properties was substantial, and the sector welcomed it. However, this limitation will push us back to a time when very few new homes were built for rent. Now, more than ever, renting was becoming rooted in our country, not as something temporary but as a lifestyle choice, more similar to the European way of life, where renting is common. The difference is that there, both landlords and tenants are better protected. In our country, much needs to be improved to achieve this stability that some European countries have.

Is a similar regulation planned for other regions with tense markets?

The idea of this new government is to implement this limitation throughout the country, as has already been done in Catalonia. The idea is for each community to have the authority to apply this limitation differently in areas they consider more tense.

This regulation, as seen in other European cities where it has been attempted, will have the opposite effect, significantly reducing the available rental stock. Therefore, the efficiency of this regulation will not have the expected effect, and both property owners and tenants will be affected by this situation.

HORIZEN Properties is here for you.

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