The property industry has also been impacted by the large rise in inflation that was experienced in 2022. Rental prices, especially in large cities in particular have seen significantly increased rental prices, often substantially above the CPI. In reality, until recently, the CPI served as the foundation for price updates. However, new restrictions were applied for 2022.
This extraordinary move imposed a cap of 2% in the annual review of active rental contracts, originally scheduled to last until June 30, 2022, and then extended until last December. The intention was to mitigate the negative effects of using an extremely high CPI for rental reviews. This policy was recently extended by the government again until the end of 2023.
What does this restriction mean?
According to the Royal Decree, the 2% cap on rental price increases will apply to all annual contract renewals. Tenants and landlords must agree on the rate of increase. If no agreement to use a different percentage is reached, it may never go higher than that cap. There are no exceptions for portfolio landlords either: no rise may exceed 2%.
The Royal Decree also addresses the following important matters outside of the cap on price increases. A six-month extension of the period of validity for contracts that expire before July 2023. It must be requested by the renter, and the terms of the contract would remain the same. The landlord will choose the rental price of the property if they decide to rent the property again.
There are some exceptions to the extension rule, including when the owner requires the house for themselves, for an immediate relative, or for the spouse in a divorce or other legal separation. But the landlord must give the tenant the proper notice in the right format.
The Royal Decree further extends until June 30, 2023, the postponement of evictions of particularly vulnerable individuals.
What impact do these policies have on the rental market?
Renters will benefit from the decoupling of the increase in CPI rent updates. As an illustration, a monthly rent of 700 euros would increase to 740 euros using the projected CPI., In a new window for 2022 (5.8%), but, the rent would stay at 714 euros with a 2% increase. Despite the fact that the actual calculation is more complex, the difference is clear.
On the other side, it suggests a loss for landlords. On the one hand, they will no longer receive the rental increases specified in the original rental agreement and they will have to continue to pay the higher costs of maintenance etc. This could result in more landlords selling up or exiting the long-term rental market.
In theory, the rental price cap will be in place until December 31, 2023. This will have an impact on any contracts that need to be renewed this year. Contracts that expire prior to June 30 are subject to the extension as well.
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