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Limits to Rental Prices in 2023: What’s New, and How It Can Affect You

Limits to Rental Prices in 2023 Whats New and How It Can Affect You - Limits to Rental Prices in 2023: What's New, and How It Can Affect You

The inflation registered in 2022 has impacted the real estate market too. Rental prices, especially in large cities, have increased considerably, sometimes even well above the CPI. In fact, the CPI was the basis for price updates until now when some limits got approved.

This extraordinary measure, initially planned until June 30, 2022, and extended until last December, set a limit of 2% in the annual review of the rents of the rental contracts in force. The goal was to relieve the effects of applying an unusually high CPI in rental renovations. Recently, the government has extended this measure until the end of 2023.

What does this limit imply?

The Royal Decree establishes that this 2% limit in rental prices will apply to all contract renewals of the year. The tenant and landlord must negotiate the rise. However, it can never be higher than that maximum if there is no agreement to apply a different percentage. For large holders, there are no exceptions: the increase cannot exceed 2%.

Apart from the limit in price increases, there is another aspect the Royal Decree includes: An extension of six months in the validity of the contracts that end before July 2023. The tenant has to request it, and the contract would maintain the same conditions. After the extension period, the owner will decide the price to rent the home again.

In the case of the extension, there are some exceptions: if the owner needs the home for himself, for a first-degree relative or for the spouse in the event of divorce or separation. However, the owner must notify the tenant at the correct time and forms.

The Royal Decree also extends the suspension of evictions of especially vulnerable people until June 30, 2023.

How do these measures affect the rental market?

Unlinking the rise in CPI rent updates is a break for renters. An example: a monthly income of 700 euros would become 740 applying the estimated CPI for 2022 (5.8%), but with an increase of only 2%, the rent would remain at 714 euros. Although the actual calculation is somewhat more complex, the difference is noticeable.

For lessors, on the other hand, it implies a loss. On the one hand, they will stop receiving what was in the rental contract. On the other, they will have to continue facing maintenance costs that become more expensive. The result could mean the withdrawal from the market of a percentage of homes intended for rental.

The rental price limit will remain in force, in principle, until December 31, 2023. They will affect all those contracts that have to get renewed during the year. The extension in the validity of contracts applies to those that end before June 30.

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