In the Spanish real estate scene, a new law arrives to change the rules of the game. This is Law 12/2023, of May 24, for the right to housing, known until now as the Housing Law. Its entry into force officially took place on Friday, May 26, 2023, after being published the day before in the Official State Gazette (BOE).
However, it is not just any regulation. This has not only been the subject of multiple months of negotiations and disputes, but also brings with it important modifications that affect when renting a property. A law that, as we will see below, will affect both owners and tenants.
If there is a measure whose debate has been on everyone’s lips in recent months, that is the redefinition of the new stressed areas. Law 12/2023 grants the power to the autonomous communities to decide whether to declare cities, municipalities or territorial areas as stressed residential market areas under certain criteria. So what are they, exactly?
At the moment, there are two requirements, of which only one of them would need to be met to be considered as a stressed area. On the one hand, that the cost of rent or mortgage in the area is greater than 30% of average household income. On the other, that the rental price of the home has had an accumulated growth percentage of at least 3% higher than the CPI of the Autonomous Community in particular.
For rental homeowners in these areas, the new law may have a significant impact on their leases. The main reason: the new legislation proposes a series of measures solely and exclusively applicable to rentals located in stressed areas.
Not everything is as simple as it seems, so the designation of a stressed area will not be reduced to just a superficial label. The status goes further and translates into the implementation of a series of measures whose purpose is to regulate, even more if possible, the rental market.
Thus, the new legislation on the right to housing contemplates a series of actions that would only be applied in stressed areas and, consequently, in all the leases that comprise them. Some guidelines that must be followed by both new rentals and those prior to the entry into force of Law 12/2023.
The first of these measures is the creation of an extraordinary mandatory extension. The tenant may request this resource at the end of the rental contract in the initial term of five or seven years. Of course, the validity will be annual and may be extended up to a maximum of three years. A period that, transferred to non-stressed areas, is reduced to just one year, as long as the lessee proves to be in a vulnerable situation and the lessor is a large holder
Within the new regulations, a maximum limit of 10% is established in the rent increase in new contracts. This limitation will be applied in two cases: when rehabilitation works or improvements are carried out in the home, and in contracts with a duration of more than ten years. In addition, large holders may not set an initial income that exceeds the maximum limit established by the reference price indices.
At the same time, the owner may not attribute to the tenant new expenses or fees that were not included in the previous contract.
Regardless of whether an area is stressed or not, the new Law for the Right to Housing also proposes changes that influence all rental contracts. In an attempt to regulate the market, the following key points that owners cannot ignore come into play.
One of the most relevant measures is the establishment of a 3% income update limit for the year 2024. Looking to 2025, the creation of a new reference index for the annual update of contracts will replace the CPI and will mean your final separation from the rental price. Until the end of 2023, the 2% limit will be maintained.
Another novelty is the obligation to use electronic means to pay rent. Through this process, the process will become safer for both the tenant and the owner.
Finally, it is established that the real estate management expenses, as well as those of the formalization of the contract, will be borne by the owner. This measure will require attention, because although it seeks to alleviate the financial burden on tenants, its effects could create financial challenges for owners in terms of profitability and costs.
Among the great innovations that we find in the housing law, we must not miss the update of tax incentives. These will be applicable to all rental homes in Spain, although it should be noted that the new conditions will only apply to rental contracts made after May 26, 2023.
The overall reduction in net positive return will then go from 60% to 50%, and can scale based on conditions being met. For example, the maximum reduction, of 90%, will be made when the owner of a property in a stressed area formalizes a new rental contract with a reduction in rent of more than 5% compared to the previous one.
After the objective of generating greater stability in rental prices, owners could be discouraged from investing in rental properties. This is how David Gordo, Head of Large Real Estate Accounts and Housfy ambassador, explains: “the new law can generate indecision among owners, a fact that would trigger an increase in home sales and an imbalance in the real estate market.”
Many landlords feel that price caps restrict their ability to earn an adequate return on their investment. After all, the limits on the increase in rent can limit, worth the redundancy, the ability to adjust prices to current conditions.
These measures may mean a change in the way that owners manage their rental properties. Therefore, we could be facing a decrease in the supply of rental housing on the market, which in turn would increase competition among tenants for available properties. Special attention will have to be paid to how the new measures develop in the coming months and years.
