The housing law cuts the wings of construction for rent


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The Council of Ministers gave the green light this week to the housing bill. Although there is still a long process of parliamentary validation, discontent has settled within a large part of the real estate sector. The interventionist maneuvers within the rental market portend changes that, according to many experts, would have dire consequences on the supply, and not only in the current one, but also in the one to come. In this sense, the take off of a still incipient ‘build to rent’ (BTR) could not take place. This formula for the promotion of new construction exclusively for rental was seen as the great hope to increase the number and quality of rental apartments in Spain.

The report ‘The Housing Property Telescope’ carried out by EY at the beginning of 2021 predicted that a volume of new residential offer for rent of 28,000 units for the whole country until 2025. “Establishing a mechanism to limit the rental price represents a risk of discontinuity for a good part of these projects, which are still in the design and financing phase, ”he argues. Javier Garcia-Mateo, partner of Strategy & Transactions of the consultancy, which has recalculated this figure: “The measures adopted by the Government could quarantine the construction of at least a third of the new rental supply projected between 2021 and 2025». In this way, some 10,000 homes out of the estimated 28,000 would be left in limbo.

The main problem with these measures is that they are somewhat diffuse. The application of price limits, already operational in Catalonia, raises many doubts, since the regulations will be based on official indices that may be renegotiated up to 18 months after the approval of the text, which transfers its application to the next legislature . «Will they use the same data to limit the rent of an attic as that of a ground floor? What if it has a pool and gym? What if the views are better than the neighbor’s? It is complicated and unfair to limit the rent of all homes equallyHe says Alejandro Bermudez, CEO of Atlas Real Estate Analytics. On the other hand, the issue of empty homes, which may be penalized with an IBI surcharge of up to 150%, is poorly defined. The National Institute of Statistics no longer publishes data on them, so it follows that the municipalities will take into account the consumption of supplies.

Adjust strategies

Taking into account that the Government has left the implementation of the regulations in the hands of each region, since it is not their competence, some companies will move away from front-line capitals, something that will be detrimental to the available offer. This has been stated Miguel Angel Peña, Residential CEO of Grupo Lar: «We will be awaiting the possible materialization of the measures to adjust our strategy if necessary. For the moment, we will be more inclined to invest in the autonomies that have declared their intention not to apply them.

In this way, find an apartment to live for rent within a stressed area that is committed to this control in rents it could be not only complicated, but more expensive, because “if in the future the highest prices of each building must be reduced, those that are below the market price will have to be raised, achieving exactly the opposite effect to the one desired”, reveals Bermúdez.

Investment obstacles

This setback in the performance of BTR projects would discourage institutional and foreign investment. According Ivan Azinovic, partner responsible for Real Estate at EY, the announced mechanisms represent entry barriers to this capital, “which has been the one that has allowed the economic recovery of the sector after the 2008 crisis.” Azinovic declares that “one of the fashionable products on the market, in addition to the logistics, was the BTR, and many international funds focused on this product are going to rethink their investments until there is clarity on the effect that this rule may have on their investments.

Bermúdez is of the same opinion, who affirms that “making things difficult for investors only slows down this affordable housing reaching the market”, ensuring that “carrying out a project planning a profitability and having it cut by law is disastrous.”

The sector fears that many international funds will rethink their investments

In the end, the absence of incentives would cause investors to discard Spain to carry out their real estate business plans, causing a snowball effect: «If the investor has no incentive, there is no investment. If there is no investment, there is no new home and there is no expense in existing ones, with the consequent damage to the tenant, who sees his choice limited. And if there is no investment, there is no economic activity and unemployment is encouraged ”, he predicts Carlos Grande, partner of Abencys.

Against efficiency

This flight of both national and transnational entities and companies of the BTR would cause the delay in the professionalization of the rental, a mandatory step in the construction of an efficient market. «When analyzing the market prices for rent we see too much randomness: there is no correlation between the rent, the state of conservation of the house, its characteristics … Let’s say that nowadays the price is set in a totally amateur way in more than 90% of the rents in Spain “, says the CEO of Atlas Real Estate.

Another collateral damage would be drastic reduction in the supply available in the medium term, in addition to its deterioration. “The live supply always tends to lose quality, since the bidders are only willing to put their worst product on the market, since they cannot reach an equilibrium price, but a lower one,” he concludes.

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