Question: How have the constant changes in the regulations governing it affected the rental market?
Answer: In the first phase there was a bit of uncertainty because the Decree-Law was passed overnight and I think it was done a little with tweezers. Anyway, the change has not affected the market beyond the first months, when the assets and funds were agitated, especially by the obligation to sign seven-year contracts, which is a long time. In the end, the midpoint and optimum for everyone, including tenants, is five years. Three years are too few for tenants. That law was not good for tenants, although it was for companies because the rotation of users allowed them to quickly raise the rental price. And we have moved from one extreme to the other, to favor societies a lot to favor them very little.
Q: What would have been the best formula?
A: Five years, the midpoint, would have been the best. In that way, the societies are those that extend the park of properties for rent. Without patrimonial societies there is no housing stock for rent. It is necessary to look for a hybrid that allows favouring both the tenant and the owner. An attempt has been made to focus the law a lot on the tenant, which is good because you have to protect it to the fullest, but you also have to protect the landlord, who is little. In the end, the owners are worried about the time it will take to get someone off the floor if they don't pay or if they squat. If that part of the law were improved, there would be much more product in the market and that would adjust prices.
Q: Is there a limitation on rental prices in Spanish legislation?
A: Limiting rents is very complicated and when you force it, it always goes wrong. In fact, in Paris or Berlin these regulations have not worked very well. And where it has worked the most, it has been in Sydney, where they have not been limited but the State has created a large rental park and the market has regulated itself. But if we limit them, prices will end up raising more because it is very difficult to tell someone what rental price you have to put. Or you put tax mechanisms to encourage owners not to increase prices. For example, giving tax credits if the price is set in a specific range of prices. In that game, you could get the owner to enter a price limitation strip. Without that, we will achieve the opposite effect, because there will be fewer homes in the market. In this sense, if a rent limitation is approved, we will see if all the promoters that have entered the build-to-rent market want to continue with their business plans.
Q: Why is it that promoters are committed to build-to-rent?
A: Since 2013 there has been a boom in Barcelona and Madrid in the demand for rent, partly because of the lower financing offered by the banks. As access to housing became difficult, the young people changed their mentality and they no longer see it as clear as to mortgage at thirty years. In addition, there is more labour mobility. And the rent gives the peace of mind that, with a month's notice, you can leave the apartment. Instead, you keep paying the mortgage. This has caused the rental demand to rise. If we used to move in 10% or 15% of people who wanted to rent, we are now between 25% and 30%. This is a lot for Spain, but we are still very far from the main European cities. The promoters are seeing the end of the sales cycle and are moving forward to take advantage of the growing rental demand. Many of the promotions of this type are rented before finishing developing the assets. In this sense, if promoters can leverage, it is a very interesting figure for companies.
Q: Can the percentage of rent in Spain reach European standards?
A: The feeling of possession is still deeply rooted in Spain. It is also true that young generations do not have this feeling so much. Or if they have it, it is in their right measure. If they cannot buy the apartment where they want to live, they rent it, and if they have savings, they buy another apartment as an investment and rent it. People no longer leverage so much, they no longer mortgage so beastly.
Q: It seems that prices in Barcelona and Madrid have already reached their ceiling. From now on, will they stay or go down?
A: Madrid has reached its peak this past summer and Barcelona peaked last year. During this 2019 we have already noticed a 10% drop in the average rental price. In the areas where rents have increased the most, such as Eixample or Ciutat Vella, where the ceiling was reached before, the apartments take longer to be rented and the owners have had to lower prices. And the forecasts for 2020 are that the owners will have to continue adjusting the amounts or it will cost them to lease them. Depending on what floors were previously rented in weeks, now it takes much longer.
Q: Does this effect move to metropolitan areas?
A: For example, in Sant Cugat del Vallès prices have also stabilized quite a bit. The single-family houses that were previously rented in few days are no longer leased so quickly. In the flats segment, assets are rented in a short time and prices have been maintained.
Q: Do the investment funds still maintain their interest in Spain?
A: Yes. Most funds continue to buy for rent. Yes, there was a bit of a brake when the law changed and forced seven-year contracts. The funds slowed down waiting to see the market change. Constant regulatory changes only generate distrust. The funds have continued betting on Spain and I think we have to bet because they continue to invest, because in the end they want the same as individuals: rent their apartments, pay them and take care of the asset. And to do so, they need to feel protected.
Q: Is the rental market ready for a new crisis?
A: You must be prepared. The previous crisis was weathered because rental prices had not yet picked up and many people had no choice but to go to the lease market. Gradually, rent has been taking root in society. Now, people don't rent anymore because they can't do anything else, they do it by choice. If a crisis comes, the rental market will have to sustain demand again. But to achieve this, we need measures that favour all parts. In the end, if there are more product, the prices will be lower.