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Rents: Uncontrolled increases and the threat of 130% increase - La Nación
Source:
www.lanacion.com.ar
August 17, 2023
August 17, 2023
Carla Quiroga
Real estate companies anticipate that the supply of rental properties will continue to fall
Agreements with prices closed last Friday down, owners who removed the rental signs from their properties, uncontrolled prices, dollarized contracts, and the latent threat of “zero offer ”. This is the scenario that the tenant who is looking for an apartment today finds themselves in.
The rental market is paralyzed and the spillover effect generated by political and economic uncertainty does not escape. Since the week began, the owners have increased the rental values of the properties by more than 25%, but they still prefer to delay the signing of the contracts . Everyone is looking to protect themselves from inflation "Today I cannot pass a rental appraisal in pesos," says Soledad Balayan, owner of Maure Inmobiliaria and confesses that she has not received offers for two weeks.
“ The law sanctioned in 2020, the lack of supply and inflation generated a nuclear bomb in this market in which demand validates any price ”, is direct, Germán Gómez Picasso, director of Real Estate Report. Their surveys of the last 10 days indicate that the year-on-year increase in studio apartments was 289 percent and in 1 bedroom apartments, 250% higher. "These are increases that occurred due to the lack of supply," he affirms and acknowledges that there are more and more agreements outside the law: the owners rent to family or friends even in dollars .
Given this macro scenario and with a dollar that today closed at $760, the ghost of hyperinflation invades the real estate market. Specialists agree that in these scenarios they are situations in which the parties usually go outside the law and end up closing private agreements. “ It is illogical to think that they will continue to be governed by a norm if all the rules are broken ”, they agree.
Rental signs, a postcard from the past: today they are rented in record time
Enrique Abatti, the man in charge of the Argentine Chamber of Owners of Argentina, recalls that in Alfonsín's hypermarket all the contracts were renegotiated . “But there was another rental law, one of the best in history, which allowed the modification of the term and the relationship between the landlord and the tenant had autonomy of the contractual will”, clarifies the lawyer, who in scenarios like the current ones advises For those whose contract is terminated, do not renew them but make extensions of no more than three months with new conditions. Last Friday, the term he suggested was one year.
“ It is a context in which everyone loses ”, acknowledges Abatti and explains that at the moment there are different legal shortcuts to be able to dismantle an ongoing contract governed by the current law . One is the one established in article 1091 of the Civil and Commercial Code that when an obligation becomes excessively onerous, the injured party can request an adjustment and even termination. In other words, it enables the possibility to review the terms of the contract and even terminate it.
"If the owner feels that the rental value was at a derisory price and the tenant does not accept the renegotiation, he can appeal to article 688 of the Civil and Commercial Procedure Code that governs CABA -and its equivalent in the procedural codes of the provinces- Allowing for an early eviction lawsuit . In this case, the judge makes a sentence in the future, which speeds up the process, ”he details.
Another option, mainly for contracts that were signed more than 12 months ago, is to make use of an article that establishes contractual unpredictability and enables the possibility of closing an equitable readjustment . In other words, something unexpected happened and you have to renegotiate.
Rental prices and new adjustments
Until a few weeks ago, renting a studio cost $143,825 per month, $176,244 for 1 bedroom and $230,178 for a 2 bedroom apartment, according to the Zonaprop index published at the beginning of August. If the same survey were carried out today, the numbers would be different, especially in a market with fewer and fewer options in pesos.
You must keep in mind that until the end of July, the rents that started new contracts accumulated an increase of 89.6% so far this year , a percentage above inflation (62.5%) and the ICL (57.3%) -the index which is used to adjust once a year the contracts in progress - which is established by the Central Bank and crosses wages and inflation.
Another data to take as a reference is that the price variation registered in the last 12 months (152.9%) was the maximum since the beginning of the series (2012) , higher than inflation (116.4%) and the ICL adjustment (108.2 %).
"No one knows what will happen next week, much less in two months ," admits the economist specialized in housing, Federico González Rouco, who adds that "the impact of inflation this week and the next on the ICL has only recently It will feel in November, the month in which whoever has to carry out the annual update will suffer a rise of more than 130%. In other words, the tenant who paid $100,000 last November will have a contract, “hopefully”, for $230,000. The good news is that he will pay that amount for one year under the current rule.
"We came with an inflationary inertia of 6% per month which, with the exchange rate adjustment in recent days, could skyrocket to 25% between these last two weeks of August and September, a percentage that will be reflected in the ICL for November ", analyzes the specialist. The explanation for the lag is that the index is updated based on inflation and salary data but from two months ago.
Today most of the contracts are closed outside the law
In the context of galloping inflation, this means that " the rent systematically loses against inflation because instead of being updated according to the reality of the moment, it is adjusted based on delayed inflation and salary figures ," says González Rouco, author of the book Owners o Tenants . For this reason, for those who have to update the annual adjustment until mid-September, it will still run at 6.3%, the inflation number for July, which is why they will still not feel the shock of this devaluation and its impact on prices.
Those that are paid in dollars
A separate analysis deserves those who had closed the rental payment in dollar bills or in pesos at the value of the MEP. “ With an increase of more than 20 percent in the exchange rate since last Friday, the tenants have already increased that percentage in pesos in just three days ”, analyzes González Rouco.
The rent in dollars has always been used in Argentina and much more in the last two or three years. Based on this, Mariano Esper, a lawyer specializing in the sector, emphasizes that " if the contract is in dollars, the tenant must pay in dollar bills or by transfer, not the equivalent in pesos because that would be a contract in pesos. "
Esper implies that no matter how many clauses the contract has, "it cannot be prevented that the tenant one day appears with a lawyer and litigates saying that it is impossible for him to pay it, that his income is in pesos, that he does not have to buy dollars and then ask them to consider changing the contract temporarily and/or definitively”. In the same vein, for Abatti "Housing rental contracts cannot be made in dollar bills because it would not be a housing rental contract , but rather an unnamed contract (of another nature) because article 1187 of the Civil and Commercial Code establishes that the rent must be in money and article 765 of the same Code says that foreign currency is not money but 'thing'. Otherwise the owner runs the serious risk of ending up in court to take him to a rental contract and not named.
And meanwhile he does not pay the rent because no one can force him to pay anything ”,He affirms that he estimates that this type of trial does not take less than a year and a half. In addition, in general, the judges rule that it is a rental contract but with the price clause "null and void". And then it ends in setting the rental price with experts appointed by the court and by the parties, which extends the trial for another six months, a period in which the tenant continues without paying the rent. And the conflict even ends with malpractice lawsuits against the person who wrote the contract (broker or lawyer).
Are there winners? And the threat of zero supply
The least affected and even "benefited" were the tenants who closed a new contract in pesos last week -for three years and which will only be updated in July of next year- because they did so in a country for a dollar that was trading at $605 and an inflation far from that which will close in the coming months. The other “winners” were those who had the annual adjustment (ICL) of their contracts underway before the STEP because the inflation and salary numbers that the ICL weighted were from the end of May.
Another risk that the market fears is the latent threat of zero supply and its consequent effect on prices. In the Real Estate Report they quantify that today there are less than 700 properties on offer for conventional rental in the City of Buenos Aires under the new three-year law and in pesos . And in one year that offer fell 60 percent. And all the signs indicate that this drop will deepen. "These are worrying data because the estimate is that there are 400,000 tenant households in CABA ," adds Gómez Picasso. “With this scenario, owners who have their properties empty will take a wait & see attitude: they will expect to know what the true value of the dollar is for both selling and renting ”, the real estate brokers agree.
In current market data: today there are 2.9 million tenant households in Argentina , 34% more than in 2016 and of which 77% are concentrated in five places: the Autonomous City of Buenos Aires. the province of Buenos Aires, Córdoba, Mendoza and Santa Fe, shares González Rouco. Gómez Picasso puts another issue on the table: "In addition, the natural growth of the population is higher than the number of homes and there is little incentive for builders to make properties for investors who rent them," he details.
What will happen to profitability?
On the other hand, owners with a contract in process will feel the shock of a drop in profitability, a margin that had improved in recent months and that in July stood at 5.24% (gross), according to Zonaprop.
The indicator was at levels similar to those of mid-2017 and the survey estimate is that 19.1 years of rental were needed to recover the investment, 26% less than what was required a year ago.
Likewise, González Rouco clarifies that although the first sensation when seeing the increase in rents is to think that it directly improves the profitability of the properties, "this rent improvement account is made with the initial value, assuming that the owner will always charge the same rent in real terms. However, from that initial value of profitability we must subtract the 24% that it loses in the three years and that is the real profitability”.
The owners prefer to leave the flats empty
The explanation is that since the rents remain fixed for a year -because they are updated annually-, as inflation advances in the year and the quota is not updated, that amount loses the purchasing power and makes the owners gradually charge less in real terms.
“ The 36th month of rent represents the lowest value of the three years: 43% of the initial value ”, analyzes the economist. In other words, with the last month's rent of the contract, the owner can buy less than half of the things that he bought three years ago by renting that same unit to the same tenant. In this context, González Rouco points out that the month that yields the most to the owner is the first, followed by the first after the adjustment; the rest give loss, the least fruitful are those prior to the update (quotes 11 and 23) and the worst of all is quota number 36.
The D Day
In this context, next Wednesday August 23 is D-day for the rental market. With the support of 10 opposition blocks, at the beginning of July, Deputies approved a motion to resume treatment of the Rental Law and face a possible change . The officialism's proposal proposes maintaining the three-year contracts, an update based on the CPI and RIPTE and making the presentation of guarantees more flexible. While Together for Change proposes returning to two-year contracts the term, updates and adjustment agreed between the parties -the CPI, IPIM or the Wage Index prepared by INDEC or a combination-.
The treatment would be given at a time that has nothing to do with the one from a week ago. However, no one expects great progress: none of the parties - the opposition and the ruling party - have a majority, and in the event that they achieve it, the half sanction of Senators would still be missing.
The Milei effect
Regarding the "Milei effect" , the intuition of the real estate market is that the candidate does not have a focus on this issue. "His vision is that everything is private, so why should a president get involved in an agreement between an owner and a tenant," say the real estate brokers, convinced that the candidate's position is that there should be no law and that he would somehow eliminate the role of the State as computer.
However, it transpired that La Libertad Avanza is working on a new standard in which the parties agree on the time, update and currency conditions . In fact, in March 2022, the candidate expressed on his Twitter account that the country did not need a new rental law and that it had to be eliminated. "There is no need to interfere in private contracts, otherwise the most vulnerable will continue to be harmed with fewer properties, of lower quality and at more expensive prices," said his post.
Javier Milei is convinced that the rental market should not be regulated
Yesterday the Real Estate Expo started at the Hilton and the conclusion of the players in the sector is unanimous: "The law passed in July 2020 must be modified, which extended the term to three years, established an annual adjustment based on an index of Central. Congress did not take up the issue in four years”, was the complaint in the corridors while insisting on the need to deregulate the market and generate greater legal certainty.
The challenge, then, will be to generate certainty in a market that has been in crisis for years. Almost an odyssey in a country submerged in an economy with inflation and exchange rate instability
By: Carla Quiroga
www.buysellba.com
Source:
Alquileres: aumentos sin control y la amenaza de subas de más del 130% para los contratos que se actualizan
En lo que va de la semana, los dueños “remarcaron” los precios 25 por ciento para cubrirse de la inflación y los inquilinos temen a la actualización anual que fija la ley
www.lanacion.com.ar
August 17, 2023
Rents: Uncontrolled increases and the threat of increases of more than 130% for new contracts.
August 17, 2023
Carla Quiroga
Real estate companies anticipate that the supply of rental properties will continue to fall
Agreements with prices closed last Friday down, owners who removed the rental signs from their properties, uncontrolled prices, dollarized contracts, and the latent threat of “zero offer ”. This is the scenario that the tenant who is looking for an apartment today finds themselves in.
The rental market is paralyzed and the spillover effect generated by political and economic uncertainty does not escape. Since the week began, the owners have increased the rental values of the properties by more than 25%, but they still prefer to delay the signing of the contracts . Everyone is looking to protect themselves from inflation "Today I cannot pass a rental appraisal in pesos," says Soledad Balayan, owner of Maure Inmobiliaria and confesses that she has not received offers for two weeks.
“ The law sanctioned in 2020, the lack of supply and inflation generated a nuclear bomb in this market in which demand validates any price ”, is direct, Germán Gómez Picasso, director of Real Estate Report. Their surveys of the last 10 days indicate that the year-on-year increase in studio apartments was 289 percent and in 1 bedroom apartments, 250% higher. "These are increases that occurred due to the lack of supply," he affirms and acknowledges that there are more and more agreements outside the law: the owners rent to family or friends even in dollars .
Given this macro scenario and with a dollar that today closed at $760, the ghost of hyperinflation invades the real estate market. Specialists agree that in these scenarios they are situations in which the parties usually go outside the law and end up closing private agreements. “ It is illogical to think that they will continue to be governed by a norm if all the rules are broken ”, they agree.
Rental signs, a postcard from the past: today they are rented in record time
Enrique Abatti, the man in charge of the Argentine Chamber of Owners of Argentina, recalls that in Alfonsín's hypermarket all the contracts were renegotiated . “But there was another rental law, one of the best in history, which allowed the modification of the term and the relationship between the landlord and the tenant had autonomy of the contractual will”, clarifies the lawyer, who in scenarios like the current ones advises For those whose contract is terminated, do not renew them but make extensions of no more than three months with new conditions. Last Friday, the term he suggested was one year.
“ It is a context in which everyone loses ”, acknowledges Abatti and explains that at the moment there are different legal shortcuts to be able to dismantle an ongoing contract governed by the current law . One is the one established in article 1091 of the Civil and Commercial Code that when an obligation becomes excessively onerous, the injured party can request an adjustment and even termination. In other words, it enables the possibility to review the terms of the contract and even terminate it.
"If the owner feels that the rental value was at a derisory price and the tenant does not accept the renegotiation, he can appeal to article 688 of the Civil and Commercial Procedure Code that governs CABA -and its equivalent in the procedural codes of the provinces- Allowing for an early eviction lawsuit . In this case, the judge makes a sentence in the future, which speeds up the process, ”he details.
Another option, mainly for contracts that were signed more than 12 months ago, is to make use of an article that establishes contractual unpredictability and enables the possibility of closing an equitable readjustment . In other words, something unexpected happened and you have to renegotiate.
Rental prices and new adjustments
Until a few weeks ago, renting a studio cost $143,825 per month, $176,244 for 1 bedroom and $230,178 for a 2 bedroom apartment, according to the Zonaprop index published at the beginning of August. If the same survey were carried out today, the numbers would be different, especially in a market with fewer and fewer options in pesos.
You must keep in mind that until the end of July, the rents that started new contracts accumulated an increase of 89.6% so far this year , a percentage above inflation (62.5%) and the ICL (57.3%) -the index which is used to adjust once a year the contracts in progress - which is established by the Central Bank and crosses wages and inflation.
Another data to take as a reference is that the price variation registered in the last 12 months (152.9%) was the maximum since the beginning of the series (2012) , higher than inflation (116.4%) and the ICL adjustment (108.2 %).
"No one knows what will happen next week, much less in two months ," admits the economist specialized in housing, Federico González Rouco, who adds that "the impact of inflation this week and the next on the ICL has only recently It will feel in November, the month in which whoever has to carry out the annual update will suffer a rise of more than 130%. In other words, the tenant who paid $100,000 last November will have a contract, “hopefully”, for $230,000. The good news is that he will pay that amount for one year under the current rule.
"We came with an inflationary inertia of 6% per month which, with the exchange rate adjustment in recent days, could skyrocket to 25% between these last two weeks of August and September, a percentage that will be reflected in the ICL for November ", analyzes the specialist. The explanation for the lag is that the index is updated based on inflation and salary data but from two months ago.
Today most of the contracts are closed outside the law
In the context of galloping inflation, this means that " the rent systematically loses against inflation because instead of being updated according to the reality of the moment, it is adjusted based on delayed inflation and salary figures ," says González Rouco, author of the book Owners o Tenants . For this reason, for those who have to update the annual adjustment until mid-September, it will still run at 6.3%, the inflation number for July, which is why they will still not feel the shock of this devaluation and its impact on prices.
Those that are paid in dollars
A separate analysis deserves those who had closed the rental payment in dollar bills or in pesos at the value of the MEP. “ With an increase of more than 20 percent in the exchange rate since last Friday, the tenants have already increased that percentage in pesos in just three days ”, analyzes González Rouco.
The rent in dollars has always been used in Argentina and much more in the last two or three years. Based on this, Mariano Esper, a lawyer specializing in the sector, emphasizes that " if the contract is in dollars, the tenant must pay in dollar bills or by transfer, not the equivalent in pesos because that would be a contract in pesos. "
Esper implies that no matter how many clauses the contract has, "it cannot be prevented that the tenant one day appears with a lawyer and litigates saying that it is impossible for him to pay it, that his income is in pesos, that he does not have to buy dollars and then ask them to consider changing the contract temporarily and/or definitively”. In the same vein, for Abatti "Housing rental contracts cannot be made in dollar bills because it would not be a housing rental contract , but rather an unnamed contract (of another nature) because article 1187 of the Civil and Commercial Code establishes that the rent must be in money and article 765 of the same Code says that foreign currency is not money but 'thing'. Otherwise the owner runs the serious risk of ending up in court to take him to a rental contract and not named.
And meanwhile he does not pay the rent because no one can force him to pay anything ”,He affirms that he estimates that this type of trial does not take less than a year and a half. In addition, in general, the judges rule that it is a rental contract but with the price clause "null and void". And then it ends in setting the rental price with experts appointed by the court and by the parties, which extends the trial for another six months, a period in which the tenant continues without paying the rent. And the conflict even ends with malpractice lawsuits against the person who wrote the contract (broker or lawyer).
Are there winners? And the threat of zero supply
The least affected and even "benefited" were the tenants who closed a new contract in pesos last week -for three years and which will only be updated in July of next year- because they did so in a country for a dollar that was trading at $605 and an inflation far from that which will close in the coming months. The other “winners” were those who had the annual adjustment (ICL) of their contracts underway before the STEP because the inflation and salary numbers that the ICL weighted were from the end of May.
Another risk that the market fears is the latent threat of zero supply and its consequent effect on prices. In the Real Estate Report they quantify that today there are less than 700 properties on offer for conventional rental in the City of Buenos Aires under the new three-year law and in pesos . And in one year that offer fell 60 percent. And all the signs indicate that this drop will deepen. "These are worrying data because the estimate is that there are 400,000 tenant households in CABA ," adds Gómez Picasso. “With this scenario, owners who have their properties empty will take a wait & see attitude: they will expect to know what the true value of the dollar is for both selling and renting ”, the real estate brokers agree.
In current market data: today there are 2.9 million tenant households in Argentina , 34% more than in 2016 and of which 77% are concentrated in five places: the Autonomous City of Buenos Aires. the province of Buenos Aires, Córdoba, Mendoza and Santa Fe, shares González Rouco. Gómez Picasso puts another issue on the table: "In addition, the natural growth of the population is higher than the number of homes and there is little incentive for builders to make properties for investors who rent them," he details.
What will happen to profitability?
On the other hand, owners with a contract in process will feel the shock of a drop in profitability, a margin that had improved in recent months and that in July stood at 5.24% (gross), according to Zonaprop.
The indicator was at levels similar to those of mid-2017 and the survey estimate is that 19.1 years of rental were needed to recover the investment, 26% less than what was required a year ago.
Likewise, González Rouco clarifies that although the first sensation when seeing the increase in rents is to think that it directly improves the profitability of the properties, "this rent improvement account is made with the initial value, assuming that the owner will always charge the same rent in real terms. However, from that initial value of profitability we must subtract the 24% that it loses in the three years and that is the real profitability”.
The owners prefer to leave the flats empty
The explanation is that since the rents remain fixed for a year -because they are updated annually-, as inflation advances in the year and the quota is not updated, that amount loses the purchasing power and makes the owners gradually charge less in real terms.
“ The 36th month of rent represents the lowest value of the three years: 43% of the initial value ”, analyzes the economist. In other words, with the last month's rent of the contract, the owner can buy less than half of the things that he bought three years ago by renting that same unit to the same tenant. In this context, González Rouco points out that the month that yields the most to the owner is the first, followed by the first after the adjustment; the rest give loss, the least fruitful are those prior to the update (quotes 11 and 23) and the worst of all is quota number 36.
The D Day
In this context, next Wednesday August 23 is D-day for the rental market. With the support of 10 opposition blocks, at the beginning of July, Deputies approved a motion to resume treatment of the Rental Law and face a possible change . The officialism's proposal proposes maintaining the three-year contracts, an update based on the CPI and RIPTE and making the presentation of guarantees more flexible. While Together for Change proposes returning to two-year contracts the term, updates and adjustment agreed between the parties -the CPI, IPIM or the Wage Index prepared by INDEC or a combination-.
The treatment would be given at a time that has nothing to do with the one from a week ago. However, no one expects great progress: none of the parties - the opposition and the ruling party - have a majority, and in the event that they achieve it, the half sanction of Senators would still be missing.
The Milei effect
Regarding the "Milei effect" , the intuition of the real estate market is that the candidate does not have a focus on this issue. "His vision is that everything is private, so why should a president get involved in an agreement between an owner and a tenant," say the real estate brokers, convinced that the candidate's position is that there should be no law and that he would somehow eliminate the role of the State as computer.
However, it transpired that La Libertad Avanza is working on a new standard in which the parties agree on the time, update and currency conditions . In fact, in March 2022, the candidate expressed on his Twitter account that the country did not need a new rental law and that it had to be eliminated. "There is no need to interfere in private contracts, otherwise the most vulnerable will continue to be harmed with fewer properties, of lower quality and at more expensive prices," said his post.
Javier Milei is convinced that the rental market should not be regulated
Yesterday the Real Estate Expo started at the Hilton and the conclusion of the players in the sector is unanimous: "The law passed in July 2020 must be modified, which extended the term to three years, established an annual adjustment based on an index of Central. Congress did not take up the issue in four years”, was the complaint in the corridors while insisting on the need to deregulate the market and generate greater legal certainty.
The challenge, then, will be to generate certainty in a market that has been in crisis for years. Almost an odyssey in a country submerged in an economy with inflation and exchange rate instability
By: Carla Quiroga
www.buysellba.com
