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

Rental Contracts Will Be Governed by the Urban Rental Act Again From 23 January 2019

22 January 2019 – El Confidencial

Rental contracts that are signed from tomorrow will again have a duration of three years, regardless of whether the landlord is a physical person or a legal entity. Also, landlords may require future tenants to provide more than one month’s deposit, as well as any additional guarantees that they consider appropriate, either in cash or as a bank guarantee.

Royal Decree-Law 21/2018, dated 14 December, governing Urgent Measures in terms of Housing and Rents, published in the BOE on 18 December, has had a very short life, given that it has not been ratified by Congress today, in such a way that all of the rental contracts that are signed from tomorrow onwards will be governed once again by the Urban Rental Act (LAU) approved in 2013. The result of the vote was 103 votes in favour versus 243 votes against, plus one abstention.

In the way, the Government has today suffered its first major defeat in Congress, after the majority of representatives voted no to the law on rental, which was only supported by the PNV and PDeCAT in the end. The decree was completely rejected by Unidos Podemos, which was not happy that the Executive had ignored its main demand to move forward with the budgets: to limit rental prices in those markets with greatest tensions and highest prices. PP, Ciudadanos and ERC joined the Purple Party in their rejection of the decree (…).

All of this means that for practical purposes, the rental market will once again be governed in accordance with the legislation set out in the LAU of 2013, whilst all of those contracts that were signed following the approval of the royal decree in the BOE to date will continue in force in accordance with the provisions thereof.

Three-year contracts and larger deposits

The parties may negotiate freely regarding the duration of contracts, nevertheless, the obligatory extension of those contracts shall be three years. In other words, although a landlord and tenant sign a one-year contract, the tenant will have the right to extend that contract for a total of three years. The tacit extension, in other words, after those three years, and provided the parties are in agreement, shall be one year.

“The landlord can demand whatever deposit he wants for the rental of a home; the decree law limited that figure to two months. In this way, the owners of flats will be able to continue to ask for bank guarantees or bank deposits, as well as a normal deposit”, explained Francisco Javier Fajardo Fernández, Professor of Civil Law at the University of Navarra (…).

Regarding those parties who have signed a rental contract in the last 35 days, he indicates that “it would be normal for citizens to sign rental contracts for a year, but those that have signed contracts in the last 35 days could be subject to a mandatory extension of up to five years. The law would cover them, although it is possible that some landlords will want to modify their contracts to apply the current law (…).

“Contracts signed between 18 December and 22 January shall be subject to a special regime with respect to the contracts signed from tomorrow onwards (…)”, said the Professor from the University of Navarra.

The return of the law from 2013 also means that landlords will be able to recover their property to use it as a permanent home in certain cases after the first year of the contract term (…).

Rental updates

On the other hand, regarding updates to rental prices, another controversial topic, according to the royal decree, if the contract does not explicitly specify that the rent will increase each year, then there shall be no rent increase. By contrast, under the law from 2013, even though the contract does not specify it, rental prices are updated each year in line with CPI – the typical rate used – or the index specified – and, if there is no mention of any index, the consumer guarantee index (IGC), approved by the Disindexation Law of 2015 (…).

Original story: El Confidencial (by E. Sanz)

Translation: Carmel Drake

Helena Beunza, General Secretary for Housing: “The Government Is Not Looking at Limiting Rental Prices”

9 August 2018

Helena Beunza has just arrived from the Valencian government to her new position as the General Secretary for Housing within the Ministry of Public Works. Like many other people who come to Madrid, she had to look for a flat. The PSOE-affiliated minister, responsible for housing policy in Spain, decided to rent.

An idealista/news exclusive interview with the new General Secretary for Housing at the Ministry of Public Works. We went deeper into the measures previously announced by the Minister José Luis Ábalos regarding rental policy, an increasingly important market for the sector and the Spanish government; the current state of Spain’s stock of housing, especially empty houses; the articulation of urban planning and the future of social housing in the country.

The current government wants to reformulate its housing policies to align them with the current state of the rental housing market. Ever more Spanish households are opting to rent, whether it is by need or conviction, and the sector requires better regulation.

The minister José Luis Ábalos already announced in the Congress of Deputies that the current government intends to upend the residential rental market with three big sets of reforms:

On the one hand, the government intends to amend the Urban Rental Act (LAU), which was signed into law in 2013 under the government of the PP. “In this amendment, we would return once again to a model of five-year contracts and three-year extensions. We would also revisit the regulations for security deposits,” Helena Beunza summarised. “On the other hand, we will establish a generalised understanding of the holiday home and tourist rental sector, so that the relevant authorities can then define the corresponding legal regimes in each Regional Community,” she said.

Action plan for 20,000 subsidised rental homes

The Minister of Development also announced the Spanish government’s initiative to allocate 20,000 subsidised homes to the rental market for young people and low-income families in those areas where the rental price has skyrocketed.

“It is a very ambitious project that not only covers legislation but the management on the part of the State at a fundamental level, in coordination with the Regional Communities and the city councils,” the general secretary noted. “Obviously, this measure alone will not solve the problem. These 20,000 homes, which will involve both new construction and renovations, are not enough, but it is a way to begin working with town councils and the CCAA (Regional Communities) for the creation of a public stock of rental housing that can be managed both publicly and through public-private partnerships,” Ms Beunza clarified.

The third group of measures that are important to highlight are the those aimed at improving the transparency of the Spanish real estate market. We know that greater access is needed, for everyone, to data and added information not just regarding the housing market, but also that for land.

Regarding taxes, we will work with the IRPF and with the IBI

To coordinate all these measures, the Ministry of Development will participate in an interministerial working group to define the legislative and tax policies that will be implemented in the housing sector. “It’s too early to talk about concrete measures. Those measures are expected to emerge from the discussions held within the interministerial working group. Regarding taxes, we will work with the IRPF and with the IBI, but the Ministry of Finance will have a leading role regarding the formulation of the tax measures that we would eventually adopt.”

Minister Ábalos stated that improvements to the tax regime associated with housing, which will go back to offering tax deductions (IRPF) and incentives to encourage property owners to place their homes on the rental market. Although it will be his colleague, María Jesús Montero, at Treasury, who will decide upon and implement any measures.

Any measures that would impact the Real Estate Tax (IBI) would have to be included in the Revised Text of the Local Authority Regulation Act, and the town councils would have to decide on their application.

The government also announced that it has ruled out any artificial limits on rental market prices. “We must differentiate between limiting rental prices from the limitation of prices that are set as a mere reference. This government has no plans to consider these issues,” says the general secretary for housing at the Ministry of Public Works.

Another one of the measures that were discarded, and the secretary states that was not even discussed, is the calculation of the IRPF (income tax for individuals) accounting for rental income.

Expand legal protections for rentals

The government does not want to limit its work to tax matters, but also intends to look at improving the legal protections within the rental sector so that the small owners can have guarantees and adequate compensation for placing their home on the rental market.

“We have to work on legal protections for both landlords and tenants, for both parties,” says Helena Beunza. “We need policies that treat housing as what it is, a fundamental right. We would have liked that the existing current speedy eviction law contained additional measures to take into account families that are occupying a home because they needed housing since we need to differentiate that occupancy from other types of occupancies.”

Secretary Beunza believes that a great deal of work will be needed to coordinate the various administrations to find a housing solution for families at risk of social exclusion. “Families need to be evaluated, and there needs to be coordination with social services so that we can help the people that want to enter the system, and who can meet the necessary conditions to sign contracts for public housing.”

From tourist rentals to empty homes

Real estate experts and regular citizens have their opinions as to the cause of the increase in rental prices. Blame is usually given to the growth in tourist apartments, the high number of empty homes and the socimis investments in the residential market. The general secretary analysed each point.

“There is a multiplicity of causes that have come together at a given moment and that have given rise to the situation in which we find ourselves now. It is too simplistic to state that tourist rentals have been the sole determinant in the increase in rents. While that could have been the primary factor in some places, but it is a very specific impact in very specific areas. The same thing holds for the increases in rental prices. We cannot speak of similar increases throughout Spain, but there have been huge variations in the increases, depending on the regions and cities involved, “the minister added.

Certain regions have already created registries of both empty homes and people seeking homes. “Yes, it is true that there are a lot of empty homes in Spain. One empty home is already too much. However, the first thing we need to understand is exactly how much empty housing there is in Spain and then we can work together with the CCAA. We need to improve data and transparency,” Ms Beunza stated.

How VPO (subsidised housing) fits into the housing stock

The Government of Pedro Sánchez has had little room for manoeuvre since taking office but has also found that many policies and items were already approved, starting with the General Budgets for 2018.

Regarding housing, the previous Minister of Public Works, Íñigo de la Serna, presented the general guidelines of the State Housing Plan for the period 2018-2021 last March. “It is not our plan, but we understood after listening to the CCAA that the priority was to sign the agreements so that the CCAA could begin to act on and process their files, mainly for calls for rental subsidies, which is he most urgent matter,” Secretary Beunza said.

The general secretary did criticise, however, is the current social housing plan (VPO), which the minister stated the PSOE would begin work on right away. “One of the issues that this Government has detected is the need to rethink the concept of official social housing. Moreover, we must take a look at all those lands which are already qualified in our country to be used in the VPO. In the current state housing plan, the word VPO does not appear.”

Land cannot again become a subject of speculation in this country

She also emphasised policies regarding land ready for development (finalist land). “We must coordinate our land policies with our housing policies because both the rental and sales markets need them to be aligned. Spain has land that is ready for development. That land is not necessarily where the developers want to build, but there is land in both Madrid and Barcelona. Another consideration is the price of that land. That is something we must consider because we can’t allow a repeat of what happened in our country before. Land cannot become a subject of speculation in this country again,” she argued.

Speaking of land, one of the biggest dilemmas facing the construction and real estate sectors also came up: the state of urban planning in Spain. “We must try to make the Spanish urban planning system more flexible and simplified. The State, although it is not directly responsible, has a clear will to define a path to accompany the CCAA (autonomous regions) in this process. We cannot take eight or 10 years to approve a general plan, simply because the economic and social reality of a particular city is not the same when a plan is approved as when it began to be written.”

The sector has been denouncing the amount of litigation in the construction industry for some time. “The problem is not just the litigation, but also but also the cascading annulments of planning instruments. It has generated a serious problem in our country since, when a general plan is annulled due to formal or material defects, the rest of the planning instruments also become null and void,” the general secretary explained.

The ministry intends to build upon the work of the previous Executive to articulate legislation that will increase legal protections and simplify urban planning.

The general secretary for housing still sees a lot of work ahead before a true state-level housing policy is defined. “There is so much to do regarding housing policies that we need to start at the beginning, and the foundations of housing policy at a state level in Spain do not yet exist,” the Secretary concluded.

Original Story: Idealista – David Marrero & Luis Manzano

Translation: Richard Turner