New housing law jeopardises investments in property for rent

The measures announced by the Government freezes more than a third of the new supply of rental housing in the midst of the 'built to rent' boom. How has the new housing law affected the property market in Spain?
he new housing law announced yesterday by the government has raised hackles among investors, the main victims of the measures proposed by the PSOE and its partner in government, Podemos, to intervene in rental prices. The regulation could even jeopardise more than a third of the new supply planned for the next five years.

Although the sector questions whether the regulation will ever be applied, the announcement has been cold water for funds and insurance companies that have ambitious investment plans for the coming years in Spain. Sources from these companies consulted by EXPANSIÓN warn of the confusion generated by these intensions and the perception of legal uncertainty associated with "electioneering and discriminatory moves". "Spain is the only country in Europe that discriminates against owners," they insist.
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The development of the law comes at the height of the build to rent (BTR) boom. The US fund Nuveen, the French firm Primonial, the division of the Deutsche Bank (DWS), the Swiss asset manager Partners Group, the development division of the European asset manager ASG, the British firm Aberdeen and the German firms AEW and Patrizia are some of the investors who have entered the market with the intention of gaining a foothold in the residential rental market in the coming years. These investors join others such as Azora, CBRE GI, AXA, Redevco, Ares, Catella, M&G, APG, Hines, Tectum, Aquila and Qualitas, which continue to increase their investment portfolio with new projects.

According to the report The Housing Property Telescope prepared by EY, it is expected to develop 28,000 new homes for rent until 2025 and, the measures planned by the Government, could put in quarantine the construction of "at least a third" of the projected new supply, that is, 10,000 homes of the 28,000 planned.

EY points out that establishing a mechanism to limit the rental price means a risk of discontinuity for a good part of these projects that are still in the design phase and in the search for financing. "Likewise, these measures are going to put a brake on foreign investment in our country, as institutional investors such as Ares, Nuveen, Primonial and DWS are behind the promotion of rental housing," they point out.

In the first nine months of the year alone, investment in ongoing developments for rent (BTR) reached 990 million euros, 25% more than in 2020, while the volume invested in finished and rented product stood at 502 million, up 80%, according to CBRE data.

Despite the flurry of rental developments underway, the professional market is very residual and rental product projects represent only 5.4% of the total new housing planned for this period.

In addition to being a blow to ongoing projects, the future regulations, which were announced on the 6th of October and of which many details are unknown, affect large landlords already present in the market, such as Blackstone or Azora, which could slow down investments, unwind positions or even exit the Spanish market.

"This type of measure could generate insecurity in the international capital markets that have Spain as the focus of their investments, discouraging investment in our country. This can affect multi-year business plans where investors do not look favourably on changing the rules of the game in the middle of it," says Samuel Población, National Director of Residential & Land at CBRE Spain.

In the same vein, Mikel Echavarren, CEO of Colliers International Spain, believes that these actions force investors to assess the "risk" of developing rental housing in autonomous communities governed by one political party or another.

Echavarren warns of the impact that similar measures have had in other European countries such as Sweden, where intervention has reached the highest levels in Europe and has caused "waiting lists in Stockholm to access rental housing of nearly 15 years, the development of a black market, the consolidation of ghettos within the city and the radical decrease in new supply". "The more or less aggressive intervention of governments in this market has been enormously pernicious and has had the opposite effect of what was intended," he adds.
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Residual application

However, Enrique Losantos, CEO of JLL, predicts that as long as housing competences remain at the regional level, their application will be residual. "With some very specific exceptions, no autonomous community will want to stop investment in rental housing or reduce the stock of rental housing, in line with the statements that are already being made," he says.

The executive considers that, although in the short term it will not have any impact beyond generating uncertainty, its long-term effect will depend on whether the definitive content of the Law skips over the autonomous communities' competences.

Losantos points out that rental housing prices are naturally reduced by increasing supply. "Any intervention in prices tends to reduce supply, as we can see is already happening in some European cities such as Berlin and Stockholm, among others, where a very serious problem of rental housing shortages has arisen," he says.

Luis Martín Guirado, corporate director of business development at Gesvalt, reminds us that build-to-rent projects are highly affected by their financing needs, since, in most cases, they do not have adequate bank financing. For this reason, investors have to provide a greater part of the funds to "finance projects that already have demanding and limited returns".

"A law such as the current one, which changes the pre-established rules of the game, interferes with and limits the setting of market rents and also creates legal uncertainty, is a major obstacle for this type of project," he adds.

Guirado considers that this measure will slow down these projects as the "economic viability of each one of them" will have to be studied again, and points out that the large owners, "erroneously called vulture or abusive funds", do not have more than 5 or 6% of the housing stock for rent, as the rest belongs to private individuals.

Carlos Zamora, head of residential at Knight Frank, points out that "demonising" the investor is not a solution. "In order to have affordable housing, the best thing to do is to put social housing on the market and encourage public-private collaboration," he says.

Zamora warns that many investors who are choosing Spain as an alternative may withdraw when they perceive regulatory uncertainty. "You can't change the rules of the game in the middle of it," he said.

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