The Government has approved a rental aid plan to help families affected by the Coronavirus crisis. 700 and 900 million Euros will go towards helping 1 million families in Spain.
The plan makes a clear distinction between private homeowners, corporate and large property owners. It is split into various categories: Funds, SOCIMIS (Sociedades Anónimas Cotizadas de Inversión Inmobiliaria / Listed real estate investment Corporations) and investors who own 10 or more properties.
All these above-mentioned groups, who own and rent property, have been given an ultimatum. They can either choose to apply a 50% deduction on rent during the time that the state of alarm lasts and up to a maximum of four months or offer their tenants a moratorium on the payment of rent for four months. This debt will be paid back to them by their tenants, without interest and in instalments over a period of up to three years following the incident. They cannot refuse to renew any existing rental contracts which may come to term during this period and they must respect the original conditions, including the price.
“It is about protecting tenants and small landowners, and ensuring that large corporations show their support in these hard times. They can sustain these measures. It is not the same as a small landlord or a retired couple,” explained the Second Vice President and Minister of Social Rights, Pablo Iglesias, “who do not have the same financial backing to support such cuts.”
The Spanish government will finance the rental fee at zero cost, for Private homeowners, those who own less than 10 properties. They make-up 85% of the Spanish rental market. Micro credits through the ICO have been approved to help families affected by the crisis. The idea is that, once these families have recovered from the slump, they will repay these micro credits over a period between six and ten years, depending on their financial situation and the difficulties they are experiencing. This measure is intended for unemployed people, workers affected by ERTEs or shorter working hours, and for self-employed workers whose income is reduced due to the slowdown in their economic activity and imposed, mobility restrictions.
For the most vulnerable groups and those that are much more affected by the crisis, the Government plans to take the funds from the State Housing Plan, a total of 400 million euros, to help these families pay rent over the next two years. These grants will only be used to cover rents of up to 900 euros per month and 200 euros in supplies.
ASIPA, the association that represents institutional real estate owners, such as Azora, feel that these measures are discriminatory towards anyone with more than 10 homes and arbitrarily discriminate these “collective savings.” They consider it important to remember that “collective or institutional savings are nothing more than management companies representing millions of individual citizens who decide to pool their savings to facilitate larger and longer-term collective investments.” These measures punish, private individuals who have been placing their savings into these funds, many of them pensioners and puts the future of access to housing at risk, by threatening the necessary legal certainty that these collective savings need to finance the 1, 5 million social and affordable housing project that must be built in Spain to solve the accessibility issue of the young people and families trying to get onto the property ladder”.
The Blackstone fund, which has become the largest owner of rental homes in Spain with some 50,000 units through different companies and SOCIMIs such as Testa, Anticipa, Fidere and Aliseda, recalls that a few days ago it already announced that it would pay special attention to vulnerable families affected by COVID 19 who cannot afford to pay their rent. “Now, we are working towards implementing new measures to support our tenants in these hard times, to help them overcome this difficult situation they are faced with.”
Similarly, the Socimi Témpore, with a portfolio of more than 2,500 properties assures that it will implement the new measures approved by the Government and highlights that they are aware of the seriousness of the situation. “We have already approved measures to help families affected by the crisis by providing more flexible payment options.”
For his part, Javier Rodríguez Heredia, President of Lazora, which has a portfolio of more than 7,000 apartments for rent, points out that “the measures approved in terms of rental are aligned with the initiative taken by Lazora -the first to take action- to face this extraordinary situation.” Lazora has already established a payment moratorium for vulnerable families who are affected by Covid19.
The manager highlights that “collective savings have shown to be stable. They are the ones that finance social and affordable housing in Spain in the long term. For this reason, we reject the populist positions and the contemptuous qualifications towards companies specialised in long-term rent, since they only seek to obtain political revenue from this serious health crisis. “
Alejandra Mora says “The removal of 50% of rental income for institutional and corporate real estate owners is a setback to the legal certainty that investors demand to participate in this market.”
Likewise, Rodríguez Heredia points out that “at Lazora, we want to highlight the Government’s balanced and responsible response and the launch of a direct aid program that contributes in a real way to solving the situation for the most vulnerable tenants without putting the country’s savings at risk”.
Alejandra Mora, Director of Investments at Tectum, another big player in real estate in Spain, agrees that “some of the measures approved today by the Council of Ministers are correct, although they will need to be followed up and discussed further since their implementation is complex and in all probability, will entail a higher cost than the 700 million euros originally planned. “
The recently created Asociación de Propietarios de Vivienda en Alquiler (Asval), (Association of Home Owners for Rent), appealed to open a Public-Private Collaboration forum. “It is time for the Administration to talk with owners to discuss solutions, not only for the immediate but also for the medium and long term since these financial issues will continue to be a problem past the state of emergency “explains Beatriz Toribio, Asval’s general secretary. “We need to come up with solutions for the long-term to bring more stability to the sector. We cannot focus primarily on a quick fix short-term.”
Ferran Font, director of Estudios de piso.com, believes that the measures applied on institutional and private real estate corporations, “will impact their bottom line and may eventually lead to new ERTES for the companies themselves. To point the finger at the professional part of the real estate sector is a mistake. especially when they have been the first to act accordingly to try and appease the situation for the more vulnerable faced with the reality of the coronavirus. “Most of the large firms in the rental sector have already implemented their own plans to ease the financial pressure on its tenants.
The manager recalls that “the real estate sector, and especially the rental sector, has been undergoing constant regulatory changes in recent months. This is a new change that, in addition to being difficult to understand, does not help calm a sector that needs stability. If we do not achieve some form of stability, in a short to medium-term interim, this may cause a leakage of rental offer towards purchasing, which would result in an increase in rental prices or, failing that, would mitigate the decrease in price which is already in motion “.
Is credit the solution?
La Agencia Negociadora del Alquiler(ANA) considers that the formula for rental aid that the Government has compiled namely ICO credits, “is not the most practical. There are questions left unanswered, including how are can we guarantee that this credit granted will make its way to private owners? In most cases private owners need the rental income with the same urgency as the tenant, “says José Ramón Zurdo, CEO of the company.
“Payment and the collection of rent is something that happens every month. These measures, which have been approved, require processing and a bureaucracy that, in a best-case scenario, can take months before its actual execution. What happens meanwhile, in April, May, June and up until the funds are released? “warns Zurdo.
“The collection of the owners’ rent cannot depend on the time it takes to grant credit to tenants. As well, we cannot avoid the possibility that this money may never end up in the hands of the private property owners who should ultimately receive these funds because it is the tenant that receives the credit to pay their rent.” says the manager.
Antonio Carroza, CEO of Seguro Seguro, highlights that with the measures that the Government has presented, “among the tenants there will be an important distinction that will not depend on their economic situation, but rather on who the owner is.”
“Distinctions have been established between tenants who live in an individual’s property and those who rent from a large corporation. This distinction that the Minister of Social Affairs, Pablo Iglesias, described as logical, is going to produce a shift in the rental market and renters are going to want to rent from corporations instead of individuals” Carroza explains.
“With these new measures in place, the Government is promoting business for the bigger fish in the market. From now on, tenants will opt to rent from a company rather than an individual property owner because, in the face of an exceptional and serious situation such as the one we are experiencing, they can offer their tenants better options” he says.
Tenants cannot get evicted
The Royal Decree implemented suspends all and any evictions for non-payment of rent until 6 months after the end of the state of alarm. “With this, the Government opens the doors to delinquents”, says Carroza. It means that landlords will be deprived of their homes, having to allow non-paying tenants to live and do as they please in their homes, unable to access their property. essentially homes owners will temporarily lose their right to private property. The owner is left unprotected and helpless by law,” confirms Carroza.
Ismael Kardoudi, director of Research and Training at Fotocasa, does not share the same view as Carooza. He said: “We see this action taken from the Government as very positive in an attempt to alleviate evictions due to non-payment of rent, especially in those areas where rent is very deer. Although it is necessary to keep in mind that this measure can reduce the supply of the rental housing market.”
The new rules that the Government is implementing (price index, price limitation …) are 100% aimed at the benefit of tenants and not the property owners. Owners feeling insecure about the rental market and their inability to control their affairs may choose not to go down the rental route. This too will affect the real estate rental market dramatically. We need to find solutions that work for both parties.