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Rental law: how the Home Ownership index that would define the new increases works and what problem it hides - La Nación Propiedades
Source:
www.lanacion.com.ar
October 02, 2023
The proposal promoted by the officialism proposes that the contracts last three years as now and that their value be adjusted semiannually based on the Casa Propia coefficient.
By Mercedes Soriano
The Casa Propia index takes into account the lowest indicator between the average salary variation of the last year and the average inflation of the same period.
This week the Senate of the Nation voted in favor of modifying the project approved by the Chamber of Deputies. With an official majority, the new proposal by the senators proposes that the contracts last three years as now and that their value be adjusted semiannually based on the Casa Propia coefficient. These two points are key because, in the sector, they are highlighted as those “responsible” for a market that is heading towards zero supply.
Specifically, the modifications approved in the Senate propose that contracts be adjusted every six months instead of annually as now and that price adjustments be indexed with the Casa Propia coefficient.
What is this index that would replace the current one, the Central Bank's ICL, about? The coefficient developed by the Ministry of Territorial Development and Habitat. It was first published in November 2021 and is the one used today for the Casa Propia and Procrear II Credits
The index takes into account the lowest indicator between the average salary variation of the last year and the average inflation of the same period. “In this sense, the formula accompanies the will of the National Government to reach a horizon where salary growth accompanies the dream of Homeownership,” says a Government document that explains the coefficient.
The proposal promoted by the officialism proposes that the contracts last three years as now and that their value be adjusted semiannually based on the Casa Propia coefficient.
In addition, the index takes into account the average of the last twelve months in terms of salary variation (CVS), instead of taking the variation of a single month as a reference. This is done in order to promote "greater stability in the updating of quotas, since it helps to mitigate the impact of eventual milestones in the evolution of salaries that respond to specific periods," they point out, although it implies a gap in the event of jumps. inflationary like the current ones.
The semi-annual update with Casa Propia yields the same as today's annual update by the Rental Contract Index, according to an economist.
The underlying problem is that the rental market needs a measure that improves the profitability of rental contracts so that owners feel incentives to allocate their properties to the market. But if the index does not reflect the reality of the price increase and the contracts become outdated again, that will not happen.
The specialists add that, to make matters worse, adjusting the rental value every six months based on the Own House coefficient does not imply an improvement in the rent but rather would keep it the same as it is now, and therefore would not produce a substantial improvement in the offer. According to the real estate monitor Invertire, the profitability in August was 3.11% annually in dollars for the average of rented units in the city of Buenos Aires.
“The current way of updating and the one proposed by the Senate bill generate a loss for the owner equivalent to approximately nine months of rent in the period that a contract lasts: three years,” calculates an economist who closely follows the market, and clarifies that this analysis is made based on the first three years of validity of the rental law.
So, the question that arises is how the Casa Propia index could improve income? Given its composition, the owner could only improve his profit compared to the current law in the event that for a long period of time salaries grow well above inflation, an unlikely situation in the current macroeconomic context.
“There is a lot of focus on which index is better or worse but there is no offer. The law does not have to scare away the offer and the proposal to use Casa Propia on a semi-annual basis preserves the same current scenario,” the experts conclude.
By Mercedes Soriano
www.buysellba.com
Source:
Ley de alquileres: cómo funciona el índice de Casa Propia que definiría los nuevos aumentos y qué problema esconde
La propuesta impulsada por el oficialismo plantea que los contratos duren tres años como ahora y que su valor se ajuste de forma semestral en base al coeficiente Casa Propia
www.lanacion.com.ar
October 02, 2023
The proposal promoted by the officialism proposes that the contracts last three years as now and that their value be adjusted semiannually based on the Casa Propia coefficient.
By Mercedes Soriano
The Casa Propia index takes into account the lowest indicator between the average salary variation of the last year and the average inflation of the same period.
This week the Senate of the Nation voted in favor of modifying the project approved by the Chamber of Deputies. With an official majority, the new proposal by the senators proposes that the contracts last three years as now and that their value be adjusted semiannually based on the Casa Propia coefficient. These two points are key because, in the sector, they are highlighted as those “responsible” for a market that is heading towards zero supply.
Specifically, the modifications approved in the Senate propose that contracts be adjusted every six months instead of annually as now and that price adjustments be indexed with the Casa Propia coefficient.
What is this index that would replace the current one, the Central Bank's ICL, about? The coefficient developed by the Ministry of Territorial Development and Habitat. It was first published in November 2021 and is the one used today for the Casa Propia and Procrear II Credits
The index takes into account the lowest indicator between the average salary variation of the last year and the average inflation of the same period. “In this sense, the formula accompanies the will of the National Government to reach a horizon where salary growth accompanies the dream of Homeownership,” says a Government document that explains the coefficient.
The proposal promoted by the officialism proposes that the contracts last three years as now and that their value be adjusted semiannually based on the Casa Propia coefficient.
How to calculate
Its formula incorporates the Salary Variation Coefficient with a capacity equal to 0.9. That is, instead of reflecting the average salary variation in its entirety, it only takes 90%,” the Government explains. In other words, it subtracts 10% from the salary indicator, which already tends to advance below inflation, so the coefficient will tend to use the advance of salaries as a reference instead of inflation. From the Government, they explain that this is done because the increase in salaries can be variable with respect to the branch of activity.In addition, the index takes into account the average of the last twelve months in terms of salary variation (CVS), instead of taking the variation of a single month as a reference. This is done in order to promote "greater stability in the updating of quotas, since it helps to mitigate the impact of eventual milestones in the evolution of salaries that respond to specific periods," they point out, although it implies a gap in the event of jumps. inflationary like the current ones.
The semi-annual update with Casa Propia yields the same as today's annual update by the Rental Contract Index, according to an economist.
The underlying problem is that the rental market needs a measure that improves the profitability of rental contracts so that owners feel incentives to allocate their properties to the market. But if the index does not reflect the reality of the price increase and the contracts become outdated again, that will not happen.
The specialists add that, to make matters worse, adjusting the rental value every six months based on the Own House coefficient does not imply an improvement in the rent but rather would keep it the same as it is now, and therefore would not produce a substantial improvement in the offer. According to the real estate monitor Invertire, the profitability in August was 3.11% annually in dollars for the average of rented units in the city of Buenos Aires.
“The current way of updating and the one proposed by the Senate bill generate a loss for the owner equivalent to approximately nine months of rent in the period that a contract lasts: three years,” calculates an economist who closely follows the market, and clarifies that this analysis is made based on the first three years of validity of the rental law.
So, the question that arises is how the Casa Propia index could improve income? Given its composition, the owner could only improve his profit compared to the current law in the event that for a long period of time salaries grow well above inflation, an unlikely situation in the current macroeconomic context.
“There is a lot of focus on which index is better or worse but there is no offer. The law does not have to scare away the offer and the proposal to use Casa Propia on a semi-annual basis preserves the same current scenario,” the experts conclude.
By Mercedes Soriano
www.buysellba.com
