Spain’s Socialist government hits apartment landlords with rent cap

Blackstone, which entered Spain post-crisis, among those affected

Mar.March 16, 2019 12:00 PM

Spain Prime Minister Pedro Sanchez (Credit: Getty Images)

Just weeks before Spain’s upcoming general election, the country’s ruling Socialist government has issued a decree limiting rent increases on apartments to the inflation rate.

Among the landlords affected by this move is Blackstone, which has invested billions of dollars in Spanish real estate since the country’s 2012 financial crash, Bloomberg reported.

“Companies that were thinking about investing in the real estate sector will rethink now whether Spain is attractive,” Madrid property and insurance lawyer Angel Mejias de Santiago told Bloomberg.

Prime Minister Pedro Sanchez had been facing political pressure from his ally, the anti-austerity platform Podemos, to do something about the country’s booming rents. Rents in Madrid and Barcelona rose by 60 percent from 2014 to 2017. For comparison, New York City rents have increased by 30 percent this decade, per Streeteasy.

Spain’s Parliament has the option to overturn the decree within 30 days of its publication, but because Congress was dissolved on the same day that the decree was issued, a smaller group of lawmakers will be handling such issues.

Under the decree, the rent cap will last five years for individual landlords, or seven years for institutional landlords like Blackstone and Spanish investor Azora, which owns and manages 14,000 units. The country’s total rental supply consists of approximately six million apartments.

“This will destroy some supply of apartments for institutional owners like us who want to buy, because the measures aren’t favorable to the product, which now has more risk,” Azora partner Javier Rodriguez said. He added that returns for long-term investors would be less affected, thanks to strong demand.

Blackstone entered the Spanish real estate market, both commercial and residential, shortly after 2012 when the previous conservative government started deregulating the market. The company acquired a $28 billion portfolio in Spain, about 25 percent of which is in rental housing.

A slowdown in the local construction industry and the rise of AirBnb-style tourist rentals has also contributed to rapid growth in rents in recent years.

Blackstone’s head of real estate for Europe, James Seppala, said the firm doesn’t oppose the new law. “What we, like all other investors, value is clarity and stability,” he added.

The Spanish general election will be held on April 28. According to recent polling, the ruling Socialist party has a considerable lead, but not enough for a majority in parliament. A new anti-immigrant party, Vox, has also made gains in the polls. [Bloomberg]Kevin Sun

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