In a constantly growing real estate market surrounded by changes, updating the rental income of a home becomes a matter of vital importance. Especially in recent months, where "the increase in the cost of living and housing have put high rental prices in the spotlight," say experts from the online real estate platform Housfy.
With the entry into force of the new housing law of 2023, some of the most important parameters regarding the annual adjustment of the rental price are modified. What can we expect, then? Next, we review the new measures that Law 12/2023 establishes in terms of updating income.
The updating of the rental price of an apartment, or a home in general, is an adjustment of the rental value that the owner can make to his tenant annually. It is a legal clause, as it is established and protected by the Urban Leasing Law (LAU), the main rental regulation in Spain.
It is important to note that updating the rent is not automatic or mandatory, but must be "previously specified and agreed in the lease", as detailed from Housfy. Therefore, it cannot be done when the owner likes it.
Until some time ago, calculating the appropriate rental price for a home required, in most cases, to use the Consumer Price Index (CPI). This was the best way to determine the fair value of the rent according to the economic state of the moment, Housfy experts specify. If the value of the CPI was negative, the income was reduced, and vice versa.
In early 2022, as prices rose and supply fell, the government implemented a rent adjustment cap. The duration of this measure is now extended until December 31, 2023, decoupling the CPI from rent and giving way to its substitute, the Competitiveness Guarantee Index (IGC), whose ceiling is 2%.
Thus, according to the limit of the update of the rental price of 2%, the monthly rent of 1,000 euros could only increase 20 more euros. The tenants should then pay 1,020 euros per month.
With a view to 2024, the approval of the new housing law extends the rent update limit to 3%. The specific measure that, from January 1, 2024 to December 31 of the same year, the CPI will continue to be unrelated to the update of the rental price.
In this case, and following the previous example, a rent of 1,000 euros per month could increase a maximum of 30 euros. So, the rent to be paid each month would be 1,030 euros in total.
Although still far away, 2025 promises to be a year of changes for the rental world, according to Housfy experts. One of the most drastic innovations proposed by the new regulations for January 1, 2025 is the decoupling of the CPI from rents. In this way, such extreme increases in rents based on this index will be avoided, which reached 10.8% in July 2022.
However, the law leaves in the dark how the updating mechanism that must be followed once the year begins will be. What it does make clear is that the National Statistics Institute (INE) will be in charge of preparing a new reference index for updating contracts. They set a deadline of December 31, 2024, in an effort not to stretch out any longer an extensive period of limits.
Thus, the new index is expected to offer values much lower than the CPI and stop excessive increases in income in annual updates. However, there is still time to discover how that price adjustment will take place.
