Spain abolishes the rental law that has become the terror of foreign investors

A regulation passed during the corona epidemic, which was intended to protect less fortunate tenants from forced eviction, has become a nightmare for private real estate owners and a headache for mortgage banks.

According to the regulation, even extreme cases such as non-payment of rent for many months or illegal takeover of the property while it was empty, did not help to evict some of the tenants who were defined by the authorities as “vulnerable” and were protected by the courts.

But at the end of February, after five consecutive years of approval, the regulation in question failed its annual approval process in parliament. Now the way has been paved for apartment and house owners to evict problematic tenants, in a move that may send tens of thousands of families and individuals to public housing or even to the street, and pour tens of thousands more empty apartments into the Spanish real estate market hungry for supply.

The Spanish government, a social-democratic minority government that depends on populist left-wing parties to survive, actually tried to extend the law, which is part of a “social shield” that it launched at the beginning of the corona epidemic. It officially supported it, and left-wing opposition parties such as “Podemos” also expressed support for it and even demanded that it be made worse. But in a joint vote of the conservative opposition, the extreme right and other parties at the end of February – the law was not approved. Now the market is facing real upheavals.

A period of high tide in the market

Currently, the Spanish real estate market, which has experienced extreme ups and downs in recent decades, is once again in a period of high tide. Investors from abroad, including many from the USA, have joined the many immigrants to the country in recent years (most of them from Latin American countries) and have created increased demand. The situation in the big cities is one of rising prices, whether it is apartments to buy or apartments to rent.

Until now, the Spanish regulations from the Corona days have deterred foreign investors. In Israel, a Petach Tikva family published their personal case, in which intruders entered the house they purchased in Spain, during renovations, and the family was powerless to evict them because the property was empty.

Although the courts approved eviction procedures, in most cases this involved legal procedures to prove that the tenants who did not pay lied when they declared themselves incapable of paying the rent, or were not officially recognized by the authorities as such.

Supporters of the regulation said that it “saves” families from living on the street and helps the poorest; Its opponents said that it directly harms the rights of the apartment owners, and that it even encourages tenants to stop paying, because it has no consequences for them.

From an economic point of view, the result was a kind of parallel sub-market, where only problematic “occupied” apartments tried to move from hand to hand, at a price less than the market price. These apartments, which are offered without visiting the property and without the possibility of taking out a mortgage from the bank to purchase them, have so far been offered at discounts of up to 40% of the market price.

In fact, private apartment owners simply wanted to “get rid” of their properties at any cost, so the popular “Idealista” real estate website opened a separate category for illegally occupied apartments and properties (Ocupadas).

In the last year, the number of ads on the site grew by nearly 5%, and stood at 24,058 apartments. About 40% of the apartments are located in Catalonia, but cities such as Guadalajara near Madrid or Pamplona also appeared on the list of “illegally occupied” properties for sale. “It has become part of the Spanish real estate picture,” the site wrote in a press release.

In Britain, the media reported on homeowners who bought properties in Spain as summer homes and stay there all year, or are looking for acquaintances to live in them for free, because they are afraid to leave them empty for fear of being taken over or rented out.

An increase of 12% per year

Last March the picture changed. The Spanish government again brought the regulation to the approval of the parliament – but it was rejected. One of the reasons is the fact that the Spanish real estate market, especially in large cities, registers high demand and an acute housing crisis.

Just in the past year, real estate prices in the country rose by more than 12%, according to a review by the BBVA bank. This is a structural problem that is expanding, due to the paucity of construction starts compared to a growing demographic with the help of immigration.

The cancellation of the protection is supposed to “free” the private apartment owners from their fear of renting, and from the preference to keep the apartments off the market, thereby bringing about an influx of vacant apartments into the market. Even those who own apartments in the coastal areas will now be able to rent the properties for a short period, without fearing that their tenants will become “illegal takers” as happened in the past.

The second reason is the protest of apartment owners, ordinary people who found themselves bankrupt because their tenants did not pay the rent. “We are in favor of social protection, but not in favor of illegal takeover of apartments,” said a representative of a Catalan party in parliament, who voted against extending the regulation.

under threat of deportation

Now, organizations for tenants in distress have estimated that about 70 thousand households are in danger of being evicted and evacuated within a few months. The authorities have decided that the time that will be given to those who are in the apartments to vacate will be different if it is a privately owned apartment or an apartment that is part of a real estate company’s portfolio. The duration will vary between two and five months. The option to disconnect the electricity or water for those who have not paid bills will also become an enforcement tool, after it was suspended during the Corona days and the previous regulations.

On a macroeconomic level, the state estimated that the very threat of eviction would significantly increase the rate of paying tenants, which could deduct the rent from their disposable income and lead to an increase in the poverty rate in Spain. As of today, Spaniards who live in rentals already spend about 40% of their salary on rent, on average.

In Spain it is hoped that on the one hand the measures will ease the boiling housing market, but on the other hand they will calm the fears of foreign investors, who have been heartened by horror stories of their property being taken over without being able to fight it.

As for the family developing hope that found itself dealing with invaders that it cannot evacuate in Madrid, it is pinning its hopes on the new legislation, but it has not yet entered into force in Madrid. “Currently, they are still taking over our property, not paying anything, and we are paying the mortgage,” the family updated.