On May 25, 2023, Spain's new housing laws will come into force. Substantial and significant laws that everyone who owns an apartment in Spain or intends to purchase one must be familiar with. The law will create a separation between entities that own a large number of apartments (over 5), and private apartment owners that own fewer and these will benefit from tax benefits in order to encourage and facilitate the renters of apartments in the demand areas in Spain. All this in the next article
In September 2020 we published an article about Barcelona's housing laws . In the same article we also said that the law was going to be canceled by the Spanish government and that is what happened. Later we told you about the huge shortage that remains in the Spanish rental market and with it about The explosion of rental prices, as well as the tensions in the government Spanish as part of the desire to pass the housing law at the national level. Now after about a year that the legislation on the subject was stuck, at the end of May 2023, and right next to the regional elections that will be held on 5/28/2023, and not by chance , the new laws will be published and this time they will include all of Spain.
Summary of matters - Spanish rental law
Broadly speaking, the new law creates control over rents in the demand areas in Spain which have received the nickname Zona tensionada ("pressure zones). As part of the law, a new index (index) was introduced, as detailed below, according to which the rental prices will be determined and it will not be possible to deviate from them. The regulation also states that those who own a large amount of apartments, below more than 5, will be called Gran Tenedor, in free translation "multi-asset entity which will be given special treatment as detailed below. In the past, before the corona epidemic, 15 apartments were required in order to gain the dubious honor, during the corona period the definition was reduced to 10 properties and today, as mentioned, the definition applies to an entity that owns 5 or more properties. The idea behind this definition is essentially socialist and allows for a different treatment between those who have little and those who have a lot.
On the other hand, it was not too late for criticism to arrive, the opposition and the private sector criticize the new law which they claim does not provide a comprehensive solution to the Spanish rental market and which they claim is expected to reduce the supply of apartments for rent and only increase the pressure. In a congressional vote, the law was approved by a majority of 176 supporters against 167 opponents and one abstention. The key to the government's success was enlisting the support of the ERC and Bildu parties. This is after a year that the law was stuck due to lack of agreement. Following the approval of the law, the PNV party warned that the Basque government would appeal to the Constitutional Court claiming that it was a circumvention of powers. A claim that also arose from other autonomous regions.
The Spanish government plans to pass the law to the Senate for approval as soon as possible. The government wants the agreement to enter into force before the regional and municipal elections which will be held on May 28, 2023.
The main points of the new law and its goals
The new housing law is designed to help citizens purchase and rent apartments at an affordable price, increase the supply of public housing, regulate the eviction of apartments, as well as address and regulate other issues related to Spain's real estate market. Below is an overview of the main points of the new law:
Restrictions on rent increases
In the past, rents in Spain were attached, in long-term rental contracts to the consumer price index. However, when it jumped and inflation arose, a temporary regulation was issued that limits the increase in rents. Currently according to regulations valid until the end of 2023, as we described in the article About updating the rent when renewing the contract, a property owner cannot increase the rent above 2% per year. Next year the limit will increase to 3%. But according to the new law, starting in 2025 A rent index will be reassembled, and rent prices will be linked to this index, this instead of the link to the Consumer Price Index (CPI) that was customary in the past. Now the Spanish government will be required to work together with the Central Bureau of Statistics (INE) in order to build the index before the end of next year .
The new index is designed to be more stable, and lower than the consumer price index. The tenants are also supposed to benefit from contract extensions on an annual basis, up to a maximum of 3 years.
The housing law cannot be excluded from the contract
For all those who are smart, it will be established within the law that it will not be possible to exclude contracts from the regulations of the law even if this is done with the consent of both parties. In addition, the apartment owners are prohibited from raising the rent by adding new expenses that were not previously requested to be paid for, such as the property tax account, the house fee, internet, etc. The new law obliges the property owner to pay all expenses and fees for the property.
Declaration of pressure zones - Zona Tensionada
The new law allows the authorities, which include municipal authorities and autonomous communities, to declare pressure areas where there is a great demand for rental apartments, when one of the following two conditions is met:
- When the rent makes up more than thirty percent of the household income in that area.
- when the price has increased by more than 3% above the consumer price index in the last five years.
The authorities can declare a pressure zone for a maximum period of 3 years. After that, the issue must be examined again, and the deadline can be extended on an annual basis, depending on the circumstances.
Contracts in force in stress areas
The contracts in the pressure areas will be subject to the rent increase ceiling (2% in 2023, 3% in 2024). and starting in 2025 will be subject to the new index. When the contract extension period ends, the tenant may request an annual extension, up to a period of 3 years. when during this period the terms of the contract which are in force will continue to apply. The exception is that the owner of the property wishes to use the property for his residence or the residence of his relatives.
New contracts in pressure areas
New contracts will be subject to slightly different regulations than the contracts in force, while differentiating between apartments owned by multi-apartment owners (Gran Tenedor), versus owners of a small number of apartments.
For those with fewer apartments, as mentioned, the rent increase rates in effect will continue to be 2% in 2023 and 3% in 2024. And linking to the new index starting in 2025.
However, the new law will allow the rent to be increased up to a maximum of 10%. This is in the case that the property has been improved, in the last two years, for the purpose of saving energy and/or improving accessibility.
However, for the majority of apartments, a price index will be set that will not exceed the new index that will be created in 2025.
And what happens regarding contracts regarding new apartments? If an apartment is rented for the first time (contractor apartment), or has not been rented in the last five years, the restrictions of the consumer price index will apply.
Tax incentives for apartment owners (those who own less than 5 apartments)
In order to encourage the supply of apartments for rent in Spain, at an affordable price, less apartments will receive fiscal incentives (taxation) through the reduction of taxable income. This reduction will take effect on January 1, 2024, and will be felt in the 2025 tax payments.
For new contracts, a reduction of 50% has been established, which can even reach 90% if the contract refers to an area defined as a pressure area. Below are the reduction rates:
* 90% discount - those who lower their rent - if a new lease is signed in a pressured area, where there is a decrease of at least 5% in the rent compared to the previous contract.
* 70% discount - renting an apartment for young people aged 18-25
* 60% discount - renovated and renewed apartments - when renovations have been carried out to improve the property in the last two years, with an investment that is at least 10% of the cost of the property, and the rent increase does not exceed 10% . It is important to note that the law applies to Spanish tax residents only. The tax benefits will be received by the apartment owners through the personal report they will submit, so it does not apply to foreign residents.
Ghost apartments - high taxation. In other words, don't leave your apartment empty!!
The law defines an empty house as a house that has not been lived in for more than two years continuously, except in justified cases. Before a house is declared unused, the owner of the property will have a hearing. Spain already has a tax on an empty apartment in Spain. Now, in order to encourage in a stronger way, the addition of empty apartments to the rental market, the city council can increase the taxation on an empty house by 150%. Today, the taxation is 1% of 25% of the value of the cadastral property, as detailed in the article, and 50% when it comes to a property owner who owns at least 4 houses. If the property has been empty for 3 years, the increase can reach 100%. After that it can be raised by another 50%. If it is about properties whose owner has two or more apartments in the same local authority.
Increasing supply in public housing for the poor in Spain
Public housing will benefit from permanent protection, and it will not be possible to exclude it from the law. The basic conditions will be defined at the policy level, which will establish a policy of permanent protection of public housing, or subsidies to promote public housing on designated areas. In all other cases, a disqualification period of 30 years is established.
Promotion of protected housing at a limited price - the land reserves reserved for subsidized housing will increase from 30% to 40% in new projects. and from 10% to 20% in urban land.