Doubts over Housing Law, which aims to cap rent rises, paralyses investment by large funds in Spain

housing overvalued

Capital Madrid | There is no respite in the battle over the large print of the Housing Law or, more specifically, over the 3% cap on the annual rent increase in contracts. Unidos Podemos wants the bill to be permanent, while the PSOE only wants to extend it for the next year. The political deadlock is causing growing discontent among funds and companies in the sector. Meanwhile, the government complains about the comments made by Spanish businessmen and assures them that there is legal certainty in Spain.

Concern is on the rise because the tension between the partners in government continues to grow. The background noise grows and grows as they wait for an agreement to be reached, which the socialists want to close now to avoid the noise. But Podemos, with Ione Belarra as the battering ram, wants to tighten the noose as much as possible with just over two months to go before the regional and municipal elections. Politics rules.
There is a lot at stake for the real estate sector. In the ‘build to rent’ business, there are already close to 100,000 homes planned in the last year, from both public and private initiatives. This is a considerable figure, but in not in any case a spectacular one considering the characteristics of the Spanish market, where the big problem is the lack of product. And, of course, prices are often very high.

“We have a serious problem. The rise in interest rates had seriously increased the financing costs of new projects. Now, add the possibility of a permanent cap on rents and the sector is at rock bottom. It is almost impossible to put clear and concrete business plans on the table for the banks that have to finance operations,” say one of the country’s major developers.

If the permanent cap goes ahead, there is a very real risk that new construction projects destined for rental will be converted into sales projects, because prices are still very attractive and demand is still strong, as shown by the 6% rise in sales and purchases last January. In short, it is the rental market that is at serious risk of short-circuiting.

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.