Limiting rent increases has not had the desired impact, according to Housfy

To mitigate the effect of the CPI rise on tenants, the update to the Urban Leases Act limits rent increases to 2 per cent from April 2022 and throughout this year. How are landlords responding to this regulation? What about tenants or those looking to rent?

Rent controls work against prospective tenants, but help those who have a tenancy in place. They also work against landlords who have a lease but favor those who have vacant properties. Landlords will try to protect themselves by setting the initial price as high as possible or by providing short-term agreements that allow them to add a new entry each year at an adjustable price, according to José Román, commercial director of the rental business area of real estate agency Housfy.

Overall, the law has had the opposite effect to that intended by its proponents, favoring households with higher incomes. It was certainly not the result that the law's advocates had hoped for, says Román.

On the other hand, the Housfy expert predicts a decrease in demand for real estate purchases because it is difficult for buyers to obtain financing with favorable conditions. For this reason, people who need to move generally choose a rental and plan to stay there for several years while they wait for the price of financing to normalize. This decline in demand for buying will accelerate the demand for renting, so prices will continue to rise.

According to José Román, a rise in rental prices could result from the actions of both buyers and sellers. "On the one hand, buyers will now prefer to rent, and on the other hand, owners of properties for sale will still take some time to decide to rent when they see that they cannot sell. Prices are likely to rise as a result of the two factors combined," he says.

Although prices are generally rising, some places may not experience the same price increase. Nominal prices will not fall, but the impact of inflation will translate into indirectly lower prices in areas with low demand. Landlords will pass on the general increase in rental prices to the remaining areas, according to the expert.

Investors who already own real estate may see a higher return as a result of rising prices, but new investors may be forced to buy expensive properties to secure financing. Román says that investing in housing is viable, but one must be very careful with the purchase price. Only very central or very unique assets that are priced above the market will be profitable.