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Rentals: How the Casa Propia coefficient works - La Nación Propiedades
Source:
www.lanacion.com.ar
October 17, 2023
Starting tomorrow, the new contracts that are signed will be adjusted every six months based on the Casa Propia index; What does it consist of and how is the calculation carried out?
What it is about and how the calculation is made with the new semi-annual rent adjustment index, Casa Propia
The new rental law will begin to be applied starting tomorrow, after the changes approved by the Chamber of Deputies last week in the Official Gazette were made public today, Tuesday. From this moment on, new rental contracts will be governed by the recently adopted provisions. This communication, signed by Cristina Kirchner, president of the Upper House, and Cecilia Moreau, her counterpart in the Chamber of Deputies, details the modifications incorporated into Law 27,551, which obtained support last week in the Lower House.
The new regulations imply two significant changes in relation to the contracts signed until today. First, rents will now be adjusted every six months, rather than once a year as previously. In addition, the percentage increase will be calculated based on the Casa Propia coefficient. The duration of the contracts will continue to be three years, but the ICL (Index of Lease Contracts) of the Central Bank will no longer be taken into consideration for indexation. Instead, a new index will be applied that is based on the lowest indicator between the average of the salary variation of the last year and the average of inflation during the same period.
The Casa Propia index is an indicator developed by the Ministry of Territorial Development and Habitat. This coefficient, which was released for the first time in November 2021, is currently used in the Casa Propia and Procrear II Credit programs.
The calculation of this index is based on the consideration of the lowest indicator between the average of the salary variation of the last year and the average of inflation during the same period. This approach responds to the National Government's intention to align wage growth with the objective of achieving the long-awaited Home of One's Own, as explained in an official Government document.
The proposal promoted by the officialism and approved in Congress maintains the duration of the contracts at three years as now and modifies that their value is adjusted semiannually based on the Casa Propia coefficient
The Casa Propia coefficient incorporates the Salary Variation Coefficient with a capacity equal to 0.9, which means that instead of completely reflecting the average salary variation, 90% of said average is taken. In other words, the salary indicator, which usually increases at a lower rate than inflation, is reduced by 10%. This leads to the coefficient tending to use the increase in wages as a reference instead of the inflation rate. The Government justifies this measure by arguing that the increase in salaries may vary depending on the branch of activity.
In addition, this index takes into account the average of the last 12 months in relation to salary variation instead of being based on the variation of a single month. This approach aims to promote greater stability in the updating of quotas, thus reducing the impact of isolated events on the evolution of salaries that may be due to specific situations. However, this also implies a certain lag in the case of sharp increases in inflation, such as those currently being experienced.
The semi-annual update with Casa Propia yields the same as today's annual update by the Rental Contract Index, according to an economist
Graph showing the evolution of the Own Home coefficient and inflation
On the other hand, Gervasio Muñoz from Inquilinos Agrupados stated that the new index is not equivalent for tenants and owners, since the semiannual increases differ from an annual increase.
Marta Liotto, president of the Unique Association of Real Estate Brokers, said that the semiannual adjustment could benefit both tenants and owners compared to the annual adjustment, but it is still insufficient in relation to inflation.
González Rouco also criticized the idea of applying a single index for the entire country, since different regions have different economic realities. The Home Own coefficient is calculated based on inflation and salary variation, but its limitation in the salary component means that it lags behind inflation in a context of nominal acceleration.
So, the question that arises is how the Casa Propia index could improve income? Given its composition, the owner could only improve its 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 semiannual basis preserves the same current scenario,” conclude the sector's leaders.
www.buysellba.com
Source:
Alquileres: cómo funciona el coeficiente Casa Propia para calcular los nuevos aumentos semestrales
A partir de mañana, los nuevos contratos que se firmen se ajustarán cada seis meses en función del índice Casa Propia; ¿en qué consiste y cómo se realiza el cálculo?
www.lanacion.com.ar
October 17, 2023
Starting tomorrow, the new contracts that are signed will be adjusted every six months based on the Casa Propia index; What does it consist of and how is the calculation carried out?
What it is about and how the calculation is made with the new semi-annual rent adjustment index, Casa Propia
The new rental law will begin to be applied starting tomorrow, after the changes approved by the Chamber of Deputies last week in the Official Gazette were made public today, Tuesday. From this moment on, new rental contracts will be governed by the recently adopted provisions. This communication, signed by Cristina Kirchner, president of the Upper House, and Cecilia Moreau, her counterpart in the Chamber of Deputies, details the modifications incorporated into Law 27,551, which obtained support last week in the Lower House.
The new regulations imply two significant changes in relation to the contracts signed until today. First, rents will now be adjusted every six months, rather than once a year as previously. In addition, the percentage increase will be calculated based on the Casa Propia coefficient. The duration of the contracts will continue to be three years, but the ICL (Index of Lease Contracts) of the Central Bank will no longer be taken into consideration for indexation. Instead, a new index will be applied that is based on the lowest indicator between the average of the salary variation of the last year and the average of inflation during the same period.
What is the Casa Propia index and how is it calculated?
The Casa Propia index is an indicator developed by the Ministry of Territorial Development and Habitat. This coefficient, which was released for the first time in November 2021, is currently used in the Casa Propia and Procrear II Credit programs.
The calculation of this index is based on the consideration of the lowest indicator between the average of the salary variation of the last year and the average of inflation during the same period. This approach responds to the National Government's intention to align wage growth with the objective of achieving the long-awaited Home of One's Own, as explained in an official Government document.
The proposal promoted by the officialism and approved in Congress maintains the duration of the contracts at three years as now and modifies that their value is adjusted semiannually based on the Casa Propia coefficient
The Casa Propia coefficient incorporates the Salary Variation Coefficient with a capacity equal to 0.9, which means that instead of completely reflecting the average salary variation, 90% of said average is taken. In other words, the salary indicator, which usually increases at a lower rate than inflation, is reduced by 10%. This leads to the coefficient tending to use the increase in wages as a reference instead of the inflation rate. The Government justifies this measure by arguing that the increase in salaries may vary depending on the branch of activity.
In addition, this index takes into account the average of the last 12 months in relation to salary variation instead of being based on the variation of a single month. This approach aims to promote greater stability in the updating of quotas, thus reducing the impact of isolated events on the evolution of salaries that may be due to specific situations. However, this also implies a certain lag in the case of sharp increases in inflation, such as those currently being experienced.
The semi-annual update with Casa Propia yields the same as today's annual update by the Rental Contract Index, according to an economist
Repercussions on the new index to be applied
The economist Federico González Rouco stated in a thread on the social network According to the real estate monitor Invertire, in August the average profitability of rented units in the City of Buenos Aires was 3.11% annually in dollars. González Rouco estimates that, in the first three years of the new rental law being in effect, the proposed form of updating could result in a loss equivalent to approximately nine months of rent for owners.
Graph showing the evolution of the Own Home coefficient and inflation
On the other hand, Gervasio Muñoz from Inquilinos Agrupados stated that the new index is not equivalent for tenants and owners, since the semiannual increases differ from an annual increase.
Marta Liotto, president of the Unique Association of Real Estate Brokers, said that the semiannual adjustment could benefit both tenants and owners compared to the annual adjustment, but it is still insufficient in relation to inflation.
González Rouco also criticized the idea of applying a single index for the entire country, since different regions have different economic realities. The Home Own coefficient is calculated based on inflation and salary variation, but its limitation in the salary component means that it lags behind inflation in a context of nominal acceleration.
Will the rental offer improve?
Finally, and regarding the new changes to the law, the economist tweeted that “both annual ICL and semi-annual Casa Propia mean, for the example of the first three years of the contract, an average drop of 25% in the rental value. If the objective is to increase supply, the modification of the Law should have gone in that direction. No offer, no rentals. Today the 36th month of rent of a contract (the last) represents only 45% of the value of the first. Using Casa Propia only keeps the problem the same.”So, the question that arises is how the Casa Propia index could improve income? Given its composition, the owner could only improve its 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 semiannual basis preserves the same current scenario,” conclude the sector's leaders.
www.buysellba.com
