The Council of Ministers has approved the draft bill for the Housing Rights Law covering the entire national scope, which is expected to come into force next year. Once it is approved, there will be an 18 month timeframe until it will be fully operational.
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The key of these regulatory provisions establishes rent regulations, price controls and tax penalties on empty properties. Property owners are classified as “grand owners” when they own ten or more properties.
Given the lack of reference indices of rental prices, this regulation proposes the creation of a public registry of rental contracts, “linked to the current registries of rental deposits recorded in every Autonomous Community. This figure will increase the available information in order to develop a reference system of rental price indices”. Therefore, the so-called “grand owners” will be obliged to charge rents linked to this “public registry of rental contracts”, rather than decide the rents freely.
This is why the effective date of implementation is postponed eighteen months before the law comes into effect.
The regulation applies to areas that are defined as having “tight housing market” conditions, in other words, large municipalities where rental prices have risen considerably higher than the rest. The establishment of these zones will be decided by each Autonomous Community, as requested by the municipalities.
Regarding other approaches designed for rent control, the law establishes income tax breaks for the new contracts regarding different criteria. Owners who opt to reduce 5% the rent price will dispose of a bonus/subsidy of up to 90% of maximum.
The text defines “empty property” as one that has been vacant for more than two years and belongs to owners that have a minimum of four properties. In that case,Town Halls can fine these owners with an extra charge of 150% in their IBI (Real Estate Tax, levied by the Municipality,usually in September). Alex Vazquez, Forcadell's Rental Housing director, considers this extra charge collides with property rights and warns that “many owners decide against renting their properties due to the lack of legal security when they have to face non-payments or squatters”.
In addition, he declared that “at the beginning, when the Catalan Housing law was approved, there was a high increase in demand, but it had nothing to do with the regulation. What had actually happened was that during the pandemic a lot of flats became empty". Currently, all indicators point out that supply is decreasing. “Even if regulations on the matter continue, the fact is if local administrations do not approve effective measures, the problem will drag on, and could even get worse”, affirms Alex Vazquez.
On the other hand, to increase housing supply, new construction promotions will be required to include 30% of developable land to be destined for social rent or public housing. It is expected there will be some sort of compensations in these cases. Forcadell’s Investment, Land and New Developments director, Christian Gracia, declares “these compensation requirements will affect the viability of new projects and could trigger cancellations of new developments”. He considers that even if these compensations are finally given out, “the economic impact will be less detrimental, but in the commercial impact will remain, due to the artificial mix of social housing and private rent free homes”.
Build to Rent, launched as an attractive option for foreign investment funds, will be another sector that will be affected by this new law. Gracia affirms that “throughout the years, this type of foreign investment would have expanded notably the rental housing stock. This is not to say that many projects will be cancelled, but there we will most surely see a slowdown and a contraction in investment volume”. For foreign investors, measures that have hardly been agreed upon generate uncertainty and insecurity, as well as reputation damage, which is not easily quantifiable, but in any case is certainly harmful for the whole of the country.
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