HEALTHPLAN MAGAZINE

After a lengthy period of negotiations, Spain's eagerly anticipated housing law, known as the 'Ley de Viviendas', is finally set to come into effect on Thursday, May 18th.

The Spanish government is expected to grant definitive approval to the law on Wednesday, May 17th, without any alterations. This eliminates the need for the legislation to return to Congress and ensures its implementation ahead of the regional elections on May 28th.

The law will be officially published in the Official State Gazette (BOE) on the following day and will take effect from Thursday, May 18th. Here are five key points about the law and how they will impact both tenants and landlords.

Rental prices will be regulated

One of the law's significant provisions empowers communities and town councils to designate "stressed" market areas, enabling them to impose limitations on rental prices.

To qualify as a "stressed" area or 'Zona Tensionada', two criteria must be met: Either the area's Consumer Price Index (CPI) exceeds that of its respective province by five points, or families allocate more than 30 percent of their income towards rent.

In these designated areas, price limitations on leases will differ based on whether the property owner possesses more than ten homes (reducible to five at the council's discretion) or fewer than five. Owners of more than five properties will be obligated to lower prices within limits established by the Ministry of Transport through an index.

Introduction of a Rent Control Index

The new law introduces a Rent Control Index that will replace inflation as the basis for limiting annual increases in rental payments starting from 2025. Previously, landlords had the right to raise prices annually by the same percentage as the CPI during the first five years of the rental contract. However, the law imposes a two percent ceiling on increases in line with the CPI throughout 2022 and 2023. In 2024, a fixed three percent ceiling will apply, regardless of inflation levels. Landlords may not exceed these percentage thresholds for existing contracts.

Agency fees to be paid by landlords

Renters will be relieved to learn that the burden of agency fees will shift from tenants to owners under the new law. Previously, agency fees in Spain often amounted to one month's rent or more. Additionally, the law prohibits owners from increasing fees beyond what is specified in the contract or advertised, such as passing on "la comunidad" (community) or municipal expenses to tenants.

IBI tax penalties for empty apartments

The housing law allows municipalities to impose financial penalties on property owners who keep their properties unoccupied, encouraging them to make them available for rent.

Such penalties will be in the form of surcharges on the Real Estate Tax (IBI), reaching up to 150 percent. A property will be deemed "permanently unoccupied" if it remains empty without justifiable cause for more than two years, provided the owner possesses four or more properties.

For properties vacant for two years, the IBI surcharge may be up to 50 percent or up to 100 percent if the vacancy period exceeds three years. City councils have the authority to increase surcharges for owners with two or more empty properties within the same municipality.

Learn more about tax penalties for empty properties in Spain.

Tax incentives for landlords

Starting January 1st, 2024, landlords may benefit from tax incentives outlined in the law.

While this aspect will not come into force on May 18th, the current system of tax incentives will remain effective throughout this year. Currently, landlords can deduct 60 percent of the rental income from their personal income tax payment.

However, in designated stressed areas, this deduction will be reduced to 50 percent.

Depending on the rental prices set by landlords, these deductions can significantly increase, nearly doubling their benefit. In specific cases, tax deductions can reach up to 90 percent if the owner reduces the rental price by a minimum of five percent compared to the previous contract.

Additionally, deductions of up to 70 percent are available if a new home is made available for rent to individuals aged 18 to 35, or if it is rented to the public administration. These incentives aim to encourage affordable housing options and support specific segments of the population.