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Why new rental contracts broke the upward momentum - Infobae
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December 21, 2024
Almost a year after the repeal of the 2020 Rental Law, current agreements show a different dynamic compared to the first half of 2024. What has changed and how do landlords and tenants interact now?
By Jose Luis Cieri
Landlords and tenants redefine agreements in a changing market, with the support of real estate agencies in the signing of new contracts (Illustrative Image Infobae)
Almost a year after the repeal of the 2020 Rental Law , the real estate market is showing significant changes. Negotiations between landlords and tenants adopted new dynamics based on the Civil and Commercial Code of the Nation and the Government's DNU 70/2023, with adjustments in values and terms. This scenario contrasts with the inertia that prevailed until mid-2024.
In a context marked by inflationary slowdown and regulatory changes, new rental contracts in Argentina show more moderate adjustments compared to those governed by the repealed Rental Law.
According to Alejandro Braña , a real estate expert and member of the Buenos Aires Real Estate Association, this trend is due to the abrupt fall in inflation in recent months, which has allowed contract values to be adjusted with less inflationary inertia.
According to Braña, the indexes used for rent adjustments, such as the Consumer Price Index (CPI) and the Rental Contracts Index (ICL), registered considerable variations. “While the CPI reflects the average cost of living at the national level, the ICL combines inflation with the adjustment of formal salaries, known as RIPTE, prepared by the Central Bank. In the last seven months, the accumulated inflation was equivalent to that registered in a single month of December 2023, which generated a direct impact on rental contracts.”
The CPI, in particular, reached historically low levels, which began to influence tenants' preferences. For those who update quarterly in agreements signed after the DNU, the impact is 7.7%, while for those who do so on a quarterly basis, it rises to 11.48%; this means that those who started paying $300,000 in October will pay $323,100 from January, and those who started in September with $300,000 will pay $334,440 from January until the next update.
According to Braña, while in the first years of the Rental Law in force, tenants preferred adjustments based on the ICL due to its lower impact compared to the CPI, this year the trend changed. The inflationary drag of previous months has led some tenants to request adjustments based on the CPI, although this situation is expected to normalize in 2025.
For his part, Mariano García Malbrán , president of the Chamber of Real Estate Services Companies (CAMESI), explained that the new contracts reflect greater flexibility in negotiations. This is due to the expected inflationary slowdown in certain segments and a growing market sensitivity towards the tenants' ability to pay . "In addition, regulatory uncertainty and expectations of legal changes led owners and tenants to prioritize more reasonable agreements to guarantee the occupancy of the properties."
Should we sign a new pact?
Regarding the impact of the ICL drop on supply and demand, García Malbrán pointed out that, although lower adjustments may provide relief to tenants, owners face tighter profit margins due to increased costs such as taxes, expenses and maintenance. “This could lead to a retraction of supply, especially in high-demand areas, which would accentuate the lack of available units.”Regarding the convenience of maintaining current contracts under the repealed regulations or signing new agreements governed by the DNU, both experts agreed that the decision depends on each particular case.
According to Braña, some old contracts adjusted by ICL brought the values to figures higher than those of the current market, while the new contracts offer greater flexibility . However, García Malbrán warned that contracts under the DNU, although more adaptable, entail legal and economic risks due to the possibility of judicialization in the event of conflicts.
In legal terms, Braña stressed that contracts signed under Law 27,551 (of 2020), repealed by Decree 70/2023, remain in force and cannot be modified. This has generated situations in which tenant families seek to escape from old contracts to benefit from the more flexible conditions of the new agreements.
"The rigidity of the previous regulations harmed both owners and tenants, even though some sectors still defend its implementation," Braña added.
Since the DNU came into force, the offer in CABA has expanded by almost 200%, now tenants tour the apartments before renting them, not as it happened in 2023 when they were rented without prior visits due to the crisis that the sector experienced (Illustrative Image Infobae)
Regarding the evolution of the rental market, Braña considered that Argentina returned to a more flexible and healthy model, similar to the one that existed before the Rental Law of 2020.
The elimination of minimum contract terms and greater contractual freedom benefited all parties involved, although challenges such as lack of uniformity in terms and adjustment rates remain.
García Malbrán said: “The market could be divided into two segments: one with personalized and short-term contracts, and another with more traditional schemes that seek stability.”
Recommendations
In this scenario, there are recommendations to minimize risks and negotiate better conditions. For tenants, it is suggested to negotiate reasonable adjustments based on inflation data and prioritize contracts with clear clauses on renewals.For landlords, it is essential to assess the tenant's profile and consider early termination clauses. In addition, Braña stressed the importance of "streamlining judicial processes in cases of non-compliance, which would benefit both responsible landlords and tenants."
The latest quarterly and four-month adjustments to rental contracts were lower than inflation, reflecting factors such as tenants' limited ability to pay, increased supply in certain segments and expectations of a slowdown in inflation.
According to a recent study, while rents are up 61% so far this year, expenses ( up more than 150% ) and utilities have seen much larger increases, reflecting the complexities of today's market.
“It is advisable to consider including early termination clauses in contracts, as a measure to minimize legal risks. In addition, it is key to seek professional advice to ensure that agreements comply with current regulations and avoid possible ambiguities,” concluded García Malbrán.
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