Blackstone May Cease Investing in Spain if the Rental Legislation Changes

27 February 2019 – Idealista

The senior director of Blackstone’s real estate division, James Seppala, has indicated at a meeting that his firm will continue investing in the Spanish real estate sector, but only provided that the regulatory framework for the rental sector remains stable. The declarations come at a time when the Spanish government is negotiating approval, with support from Podemos in extremis, for a royal decree that seeks to modify the Urban Rental Act (LAU) and to limit rental prices.

At a meeting organised by Bloomberg (…), Seppala added that his firm will continue to back the real estate sector, especially in Madrid, Barcelona and their metropolitan areas, which offer returns of between 6% and 7%. He is convinced that there is no risk of prices overheating in those areas (…).

Original story: Idealista

Translation: Carmel Drake

PSOE & Podemos to Save the Rental Reform without Price Limits

27 February 2019 – Cinco Días

Despite the initial disagreements and failures, all indications are that the Government and Podemos are going to end up rescuing the Rental Act. The Executive is expected to present new text to the Council of Ministers on Friday, which will not include limitations on rental prices, but which will reflect significant changes with respect to the text that was toppled a month ago. Those changes include: the compilation of an official price index in large cities; updates to rents subject to CPI; and greater guarantees against evictions, according to reports from El País yesterday.

The draft being finalised by the Executive does not include any measures regarding limits on rental price increases, but it does propose compiling some official price indices to serve as a tool for autonomous regions to establish their own housing policies, since they have the authority in this regard.

Podemos, a key partner to enable the validation of the Act regards this measure as insufficient but sources in the party acknowledge that they would have to concede to save the other improvements proposed by the text and reverse the harmful measures introduced by the PP in 2013. One option being considered is an 80% discount on the IBI charge for those owners who comply with the price index (…).

Another feature of the new text is that the update to rental prices during the term of a contract may only be subject to CPI, something that used to be included in the Urban Rental Act until the PP eliminated it in 2013.

The Act also recovers the increase in the duration of contracts from three to five years, or seven in those cases where the owner is a company, but also adds that all contracts will be valid, regardless of whether they are registered in the Property Registry (…). Another initiative included in the draft text, to provide greater security to tenants, are the notice periods for the non-renewal of contracts, which increase from one to four months in the case of owners and from one to two months for tenants.

The new regulation will also include enhanced guarantees against evictions (…).

Original story: Cinco Días (by E.C.)

Translation: Carmel Drake

Revised Legislation: Socimis to Pay Tax of 15% on Retained Profits

11 January 2019 – Expansión

The General State Budgets for 2019, which are going to be approved by the Council of Ministers today (Friday) and which are going to be presented to the Congress on Monday, will include a tax charge on the undistributed profits of Socimis, to which a tax rate of 15% will be applied, according to reports made by sources speaking to this newspaper. The measure was agreed between Podemos and the Tax Authorities although the Government did not include it in the Budget Plan that it sent to Brussels in October or in the draft bills that are already being processed. The General Secretary of Podemos, Pablo Iglesias, blames the Socimis for the “rental bubble”.

This measure follows other initiatives agreed with Podemos, which cause the greatest impact of the increase in taxes set out in the budgets to fall on companies: they include a tax of 5% on overseas dividends and the imposition of a minimum taxable base of 15% in terms of Corporation Tax, which will be added to the draft bills to create the Google tax and the Tobin tax.

Socimis (Listed Public Companies for Investing in the Real Estate Market) were created by Zapatero’s Government in 2009 to revitalise the real estate market. They enjoy a very beneficial tax regime. The rate of Corporation Tax applicable to them is zero, provided they fulfil a series of requirements: their minimum capital stock is €5 million, which may be invested in a single property; a minimum of 80% of the profits obtained from rental must be distributed in the form of dividends; and a minimum of 80% of the value of the assets in urban buildings must be leased for three years. For the rents received from other types of activities, the Socimis have to pay tax at a rate of 25%.

From now on, a tax rate of 15% will have to be paid on all of the profits not distributed by these types of entities.

“We need to discourage the promotion of these types of companies that promote the bubble model, undermine the public coffers and represent a grievance for competition. We consider that the special regime afforded to the Socimis, whose main feature involves a tax rate of 0% for Corporation Tax, needs to be reversed”, said Podemos in a recent document. It regards it as “necessary to reverse Government policy, based on forcing tax regulation to create a tax haven for companies that promote a new housing bubble”.

Original story: Expansión (by Mercedes Serraller)

Translation: Carmel Drake

Sareb Sells its Socimi & its 3,300-Asset Portfolio to TPG

4 December 2018 – El Independiente

Sareb, the Company for the Management of Assets proceeding from the Restructuring of the Banking System, is closing the final details of the sale of its Socimi Tempore Properties to the private equity fund TPG.

The company, which is in the middle of a non-monetary capital increase amounting to €150 million and which will soon manage 3,300 real estate assets worth €325 million, received several offers at the end of November, including from the fund Apollo. In the end, the proposal from TPG has proved victorious, according to sources speaking to El Independiente.

The US group TPG, which has USD 94 billion in assets under management, is the shareholder of companies such as Spotify, Airbnb, Burger King, Lenovo, Ducati, Saxo Bank and Grohe, amongst others.

The so-called bad bank, in which the State holds a 45% stake, hopes to close this operation before the end of the year, in order to improve the appearance of its accounts, which will again feature losses.

The Tempore portfolio sold by Sareb is concentrated (80%) in the metropolitan areas of the major capitals, with the remainder located in regions with significant demand in the rental market, such as Valencia, Sevilla, Zaragoza, Málaga and Almería.

Azora is responsible for the management of the portfolio – it performs the administration and marketing activities for the assets directly. The company is led by the Director of Rentals at Sareb, Nicolás Díaz Saldaña. Before his arrival at Sareb, Saldaña was at the helm of the international department at Metrovacesa during the most complicated period of the real estate crisis.

Sareb is selling its Socimi at a time when these types of companies are in the Government’s spotlight, in light of the insistence of Podemos to toughen up the beneficial tax regime that has facilitated the expansion of the vehicles in recent years.

The Bank of Spain has also started to monitor the Socimis as a potential focus of instability for the financial sector and links the rise of these vehicles to the sharp increases in the prices of offices and commercial premises.

Original story: El Independiente (by Ana Antón)

Translation: Carmel Drake

Sánchez’s Government Lets Socimis & Sicavs Off the Fiscal Hook Despite Podemos’s Efforts

16 October 2018 – El Independiente

The Government has managed to dodge two demands from Podemos that had raised concerns in the financial community: the taxation of Socimis and the conditions of Sicavs, the companies that wealthy fortunes use to manage their assets.

The Budget Plan for 2019 approved on Monday at the extraordinary council of ministers does not allude to these two vehicles, despite the contumacious struggle by the purple party to put an end to their benefits. In fact, the Government led by Pedro Sánchez and Podemos had signed an agreement for the budget plan for next year, which included modifications to the conditions of both companies, but, in the end, that has been ruled out.

The aforementioned agreement, published on 11 October, included increasing the tax on Socimis (…), which currently operate under a special tax regime for collective investment institutions (funds and Sicavs).

For the income obtained during the exercise of their main activity (rental and leasing of properties), Socimis pay tax at a rate of 0%. And for income that they receive from other types of activities, they pay tax at a rate of 25%.

The pact between the Executive and Podemos was going to mean applying a tax rate of 15% on the profits not distributed by those entities. In the end, that measure does not form part of the budget for 2019.

The other victory earned by Sánchez over Pablo Iglesias stars Sicavs. Both parties had agreed to tighten control over these vehicles to avoid their fraudulent use. In the end, they will be subject to the same supervision that has applied to them until now.

The agreement had involved granting the inspection bodies of the Tax Authorities the competence to declare, for exclusive tax purposes, the breach of the requirements established for the Sicavs in the financial legislation. In other words, it gave powers to the institution to ensure that the vehicles had, as required by that law, 100 genuine shareholders, to combat the typical practice whereby a single investor controls most of the capital (…).

Similarly, the Government and Podemos had reached an agreement to “establish additional requirements for application by the Sicavs of a reduced tax rate aimed at ensuring their nature as collective investment instruments, for example, the establishment of a maximum capital concentration in the hands of a single investor (including the stakes of related individuals and legal entities). However, that measure, although it may reduce the volume of capital that these entities receive, would objectify the collective nature of these investment vehicles, facilitating their regularisation by the Tax Agencies in the cases of fraudulent uses of Sicavs”.

Taxes on the banks

The entities that have, for the time being, not managed to free themselves from the tax blow are the banks. The Government wants the next budget to include a specific tax that targets financial transactions. The so-called Tobin tax has already met firm opposition from the banks and regulators, which warn of the risks that its implementation would have for the growth of the economy.

The Government’s forecast is that the proceeds raised from such a tax would reach €850 million, according to the Minister for Finance, María Jesús Montero (…).

Original story: El Independiente (by Ana Antón)

Translation: Carmel Drake

Spain’s Large Socimis are not Perturbed by Podemos’s Proposed Tax Legislation

14 October 2018 – La Información

The Socimis, one of the great tax regimes currently booming in our country, suffered a serious blow on Thursday after an agreement was published between PSOE and Podemos to push ahead with the State’s General Budgets. As a result, the Socimis are going to have to pay tax (at a rate of 15%) on any profits that they do not distribute as dividends, in other words, the funds that remain in the companies to increase their capitalisation. But, which companies are going to be most affected? Only the smallest ones.

In recent months, the large real estate companies on the Ibex and the Continuous Stock Market have been distributing significant dividends, in some cases even exceeding their accounting profits by two or three times. Therefore, the new measure will not affect them, given that only undistributed profits will be taxed. By contrast, the small entities that are listed on the Alternative Investment Market – where they have their own segment – barely exceeded the obligatory dividend distribution of 80% of the profits for that type of company in most cases.

If we take Merlin – a giant in the tertiary sector –by way of example. Last year, it obtained a profit of €114.5 million (after discounting the appreciation of its assets) and it dedicated 205% of its profits to dividends. Even high figures were recorded by Colonial, which distributed 267% of its profits to its shareholders, and Lar España, which is listed on the main stock market, and which distributed 236% of its results after taxes to the owners of its shares.

By contrast, the small companies on the MAB complied with the law in a comprehensive way but without distributing such significant figures. Such was the case of AP67, a Socimi whose assets are primarily residential, commercial and office-based, which distributed just over €240,000 of its total profits of €300,000.

Why do the small companies only distribute the legal minimum? Most of the companies listed on this market are owned by a small number of shareholders, normally those who have been with the entity since the beginning and, therefore, they have no commitment to the owners of those shares. In fact, the movement in shares is so small in the majority of cases that the volume is almost nil.

By distributing 80% of their profits as dividends, they pay tax of up to 25% on those earnings, whilst the remaining 20% is posted to reserves and, previously, there was no requirement to pay any tax on that. With this proposal, the money that is not distributed to the shareholders (in other words, that 20%) would be subject to a tax rate of 15%.

For tax experts, these measures may scare off foreign investors, especially funds, which regard Spain as a good opportunity for investing after the framework for Socimis was brought into line with those governing REITs in countries such as France and Germany. Moreover, “other countries have an advantage over Spain going back many years and they offer more beneficial tax frameworks”, something that the new tax will only serve to dent in the Spanish system.

In light of the possible approval of the draft presented on Thursday by Unidos Podemos and PSOE, the Socimis “will distribute all of their profits as dividends to avoid the double taxation of the same money”, said a high-profile tax advisor consulted by La Información.

Original story: La Información (by Lucía Gómez)

Translation: Carmel Drake

Government & Podemos Agree to Allow Town Halls to Regulate Rental Prices

11 October 2018 – Eje Prime

The Government has said yes to public control of the rental market in Spain. The Executive led by Pedro Sánchez (below left) has agreed to the regulation of rental prices by Town Halls, according to explanations provided in a Budget agreement reached on Thursday by the PSOE and Unidos Podemos. The measure is established provided its application is “temporary and exceptional” and is carried out only in those urban areas where there has previously been an “abusive increase” in rents.

Rent has formed the focus of the new Government’s action plan in terms of housing. In parallel to the regulation of prices, the Executive has announced that it will advocate the extension of the minimum term of lease contracts from three years to five, and, in those cases where the owner is a legal entity, the lengthening of the commitment between landlords and tenants to seven years. Moreover, the tacit renewal of contracts will be increased from one year to three, provided the intention to not renew the agreement is communicated by either of the two parties at least six months before it is due to terminate.

In addition, the PSOE and Unidos Podemos have agreed that damage deposits (fianzas) to enter rental flats will be capped at a maximum of two months and that the signing of bank guarantees will no longer be demandable by landlords. In the event that an owner wants to recover his home before the term agreed with the tenant, then that scenario must be formally explained in the contract in force.

More funding for the development of rental housing

The agreement, which will now have to be approved by Congress, includes a measure that supports the development of public housing. In the event that it receives the green light from the chamber, the Government will increase the housing budget for next year to €630 million. In 2020, it will increase that pot further still to €700 million and in 2021, to €1 billion. According to the text, in ten years, Spain will invest between 1% and 1.5% of its Gross Domestic Product (GDP) in public housing.

One of the objectives of the public housing plan is “to avoid “homes” from being sold to vulture funds or sold for a profit”, so as to ensure that “particularly vulnerable people” have the possibility of accessing a rental home.

Original story: Eje Prime

Translation: Carmel Drake

Spain’s Government Wants to Prohibit the Sale of Public Housing to Vulture Funds

12 September 2018 – El Mundo

The Government wants to give a new impetus to the housing policy in Spain and has placed social housing at the centre of its strategy. In this context, the President of the Executive, Pedro Sánchez (pictured below), has announced to the Congress of Deputies, that the new law he is preparing will configure social housing as a public service to ensure access to it for all citizens and moreover, to put a stop to the sale of public homes to the so-called venture funds.

During his speech at the control session of the Government, Sánchez announced that the State Attorney will appear in court regarding a criminal case into the investigation of the sale of 5,000 public rental homes undertaken by PP governments in the Community of Madrid and the Town Hall of the Spanish capital to private equity funds in 2012 and 2013.

The Institute of Housing in Madrid (Ivima), of the regional Government of Madrid, sold 2,935 public rental homes in 2013, whilst the Town Hall of Madrid, through the Municipal Housing and Land Company (EMVS), sold 1,860 homes of the same kind in 2012, according to Efe.

“We are not going to stop until the administrations that are behind this intolerable abuse, which has affected so many people of limited means, assume their political and economic responsibilities”, said the President.

The demands of Iglesias

Sánchez responded in that way to the Secretary-General of Podemos, Pablo Iglesias, who has also called for other measures to put a stop to the rise in residential sale and rental prices in Spain, including, “ending the privileges afforded to Socimis, the commercial companies that operate in the real estate market and which are taxed at 0%”.

The leader of Podemos also requested that “large owners and venture funds, who own more than ten homes” be forced “to put those properties on the market”, and he proposed that “it is fundamental that the Town Halls be given authority to declare certain urban areas as “stressed markets” so that rental prices there can be regulated”.

Original story: El Mundo (by María Hernández)

Translation: Carmel Drake

Podemos & the Tax Authorities Negotiate a Stricter Fiscal Framework for Socimis

11 September 2018 – Expansión

Podemos and the Government are studying measures to put a stop to the “rental bubble in Spain’s largest cities”, which Pablo Iglesias argues is being caused by the tax advantages being afforded to the Socimis.

The Tax Authorities and Podemos are negotiating a stricter fiscal framework for Socimis. That is according to sources at the negotiations, and to an announcement made by the leader of Podemos, Pablo Iglesias (pictured above, right), after his meeting with the President of the Government, Pedro Sánchez (pictured above, left), on Thursday.

Iglesias spoke of an “understanding” on this point and of advances in the negotiations. Although the fiscal framework of these real estate investment companies has always been under Podemos’s spotlight, it did not mention it in the document that it sent to the Tax Authorities in August detailing its requests, in exchange for its support of the Budgets. But, that was not a question of “limited demands”, according to sources at Podemos, who are now negotiating measures with the Executive to put a stop to the “rental bubble in Spain’s largest cities”. And, in Podemos’s opinion, the beneficial legislation afforded to Socimis explains this bubble, and it needs to be addressed urgently. Iglesias will spend tomorrow questioning Sánchez in the control session of the Government in Congress regarding the “measures that the Executive plans to adopt to put an end to the rental housing bubble”.

“We need to discourage the promotion of these types of companies, which foster the bubble model, undermine the public coffers and represent an affront to competition. We think that the special framework for Socimis, whose main feature consists of a Corporation Tax rate of 0%, needs to be reversed”, said Podemos recently in a document (…).

In this latest document, Podemos therefor, therefore, to put an end to this zero tax rate for Socimis, compared with the nominal tax rate of 25% (…). The negotiations with the Tax Authorities are based on the premise that Podemos wants to bring the tax rates for Socimis in line with those applicable to other companies. However, it does not rule out that the measures agreed will be aimed at having more control over their tax framework.

Zapatero’s Government created Socimis in 2009 in an attempt to revitalise the real estate market, inspired by the REITs (Real Estate Investment Trust) from the Anglo-Saxon world. They enjoy a very beneficial tax framework. Their Corporation Tax rate is 0%, provided they fulfil certain requirements: the minimum share capital must amount to at least €5 million (…); the funds must be invested in properties; a minimum of 80% of the profits obtained from rental must be distributed as dividends; and at least 80% of the value of the assets in urban buildings must be leased for at least three years.

Unlike the Sicavs, there is no requirement for Socimis to have a minimum number of shareholders, but their shares must be admitted for trading on a regulated market (…).

Following the economic recovery and the boom in the real estate market since 2013, the Socimis are enjoying a golden period (….).

Original story: Expansión (by Mercedes Serraller)

Translation: Carmel Drake

New Housing Plan Will Include Aid For Renters & Evicted Families

14 December 2016 – El Mundo

On Tuesday 13 December, the Minister for Development, Íñigo de la Serna (pictured above), said that the future Housing Plan 2018-2021, which his department is currently working on, will seek to continue to support rental housing through a specific program of aid, and will add other assistance for families evicted from their habitual residences.

De la Serna emphasised that the draft plan includes financing for a program of aid for families evicted from their habitual residences that find themselves in vulnerable situations, through the constitution of social funds for rental housing.

Similarly, he expressed his intention for the new housing plan to continue to offer support for rental housing thanks to a specific program.

The Ministry of Development has already started the process to approve this new housing plan and to this end, it has invited the Autonomous Regions to a conference, which will be held on Thursday 15 December, where some of the overarching premises are expected to be discussed.

The Minister for Development recalled that last Friday, the Council of Ministers approved an extension of the Housing Plan 2013-2016 to ensure that its beneficiaries will not lose their aid from 1 January 2017 onwards.

In terms of the sale of social housing to vulture funds, De la Serna reminded the Podemos party Senator María Pilar Garrido that the Government will not carry out any sale in this sense because the duties in terms of housing are assumed by the Autonomous Regions.

“We have to comply with the law and not encroach on the regional duties that are not our responsibility”, he added.

He also said that the State can only influence the regulation of economic planning, specifically, the definition of safeguarding actions and the regulation of financing structures through the contribution of state resources.

Based on this, he explained that the Government approves the state housing plans, which are then managed through agreements with the different autonomous regions.

Original story: El Mundo

Translation: Carmel Drake