Aug. 24 (Bloomberg) -- Spain’s cabinet is likely to approve measures today making it easier for landlords to evict non-paying tenants as the government tries to encourage investment in rental property.
The changes proposed in May will “most probably” be approved today and sent to Parliament, according to a state official who asked not to be named citing government policy.
“We need this reform like a desert needs rain,” said Fernando Encinar, co-founder of Idealista.com, Spain’s largest property website. “A dynamic and functioning rental market is essential for labor mobility and a healthy economy.”
Spain has just 1.8 million rented homes out of a total of 25 million, according to the Public Works Ministry. The small proportion of rentals hurts labor mobility because displaced workers have difficulty changing their residence to follow job opportunities. Spanish law, which has been stacked in favor of tenants, discourages investment in homes bought for the purpose of renting them out.
The changes being considered today will give landlords greater legal protection and recourse to recover their properties from tenants who stop paying rent.
Landlords currently have to go to court to evict non-payers in a process that could be long and expensive. If tenants paid the amount owed at the last minute, the process would be halted. That would allow the tenant to remain in the property and to reoffend, forcing the landlord to start proceedings again. Under the new proposals, defaulters will have a 10-day window to pay arrears or face eviction.
Annual rent increases for tenants, which can only match inflation currently, will be subject to agreements between the landlord and tenant, according to the May 11 proposal. Owners will also be able to retake their property with two months’ notice if they need the home for themselves, a blood relative, or a partner in the case of divorce.
“With the drop in mortgage lending and the hike in unemployment, rental accommodation in Spain is going to become much more necessary,” said Alexander Pelteshki, an analyst at ING Financial Markets in Amsterdam.
Tenants had been entitled by law to remain in a property for five years and a further three if they had the tacit agreement of the landlord. That time will be reduced to three years of permanence plus another year if the landlord tacitly agrees.
SOCIMI, Spain’s version of real estate investment trusts established in 2009, will also be modified to make them more attractive to investors and more competitive with European REITs, according to the spokesman.
Minimum investment in SOCIMI will fall to 5 million euros from 15 million euros. In addition, they will no longer be required to hold at least three assets and the minimum period to hold them will fall to 3 years from 7 years.
“These are clearly steps to encourage investment, especially from abroad, in Spain’s real estate market to help absorb some of the overhang of housing stock,” ING’s Pelteshki said.
Foreign investors will be given tax breaks of 60 percent from income generated from rented apartments and 100 percent if the properties are rented by 18 to 30 year-olds who are not eligible for state rent support.
To contact the reporter on this story: Sharon Smyth in Madrid at firstname.lastname@example.org.
To contact the editor responsible for this story: Ross Larsen at Rlarsen2@bloomberg.net.