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Answers to ten key questions about rents - La Nación Propiedades
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www.lanacion.com.ar
August 20, 2023
By Carla Quiroga
The owners “marked up” the prices by 25 percent to cover themselves from inflation and the tenants fear the annual update established by law.
There are fewer and fewer properties on offer for rent: it is estimated that there are less than 900 in the entire city of Buenos Aires
Agreements with prices closed last Friday fallen, owners who removed the rental signs from their properties, uncontrolled prices, dollarized contracts, and the latent threat of “zero offer.” This is the scenario faced by the tenant who is looking for an apartment today.
“The law passed in 2020, the lack of supply and inflation generated a nuclear bomb in this market in which demand validates any price,” Germán Gómez Picasso, director of Real Estate Report, is direct. Their surveys from the last 10 days indicate that the year-on-year increase in single-bedrooms was 289 percent and in two-bedrooms, 250 percent. “These are increases that occurred due to a lack of supply,” he says and recognizes that there are more and more agreements outside the law: owners rent to family or friends even in dollars.
Given this macro scenario and with a dollar that this week passed $700, the ghost of hyperinflation invades the real estate market. Specialists agree that these scenarios 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 rule if all the rules have been 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 the Argentine Republic, remembers that in Alfonsín's hypermarket all 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 from the contractual will,” clarifies the lawyer, who in scenarios like the current ones advises For those whose contract ends, do not renew them but make extensions of no more than three months with new conditions. Last Friday, the deadline he suggested was one year.
“It is a context in which everyone loses,” Abatti acknowledges and explains that at this time there are different legal shortcuts to be able to dismantle an ongoing contract governed by the current law. One is that established in article 1091 of the Civil and Commercial Code that when an obligation becomes excessively onerous, the injured party may request an adjustment and even termination. In other words, it enables the possibility of reviewing the terms of the contract and even terminating it.
"If the owner feels that the rental value was at a ridiculous 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 - which allows an early demand for eviction. In this case, the judge makes a ruling 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 we have to renegotiate.
It must be taken into account 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 ongoing contracts once a year - which is established by the Central Bank and crosses salaries and inflation.
Another piece of information to take as a reference is that the price variation recorded 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). %).
“We came with an inflationary inertia of 6% monthly that with the exchange rate adjustment of recent days could shoot up to 25% between these last two weeks of August and September, a percentage that will be reflected in the November ICL,” 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 contracts are closed outside the law
In a context of rampant 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,” maintains González Rouco, author of the book Dueños o Tenants. That is why those who have to update the annual adjustment until mid-September will still run at 6.3%, the July inflation number, which is why they will not yet feel the shock of this devaluation and its impact on prices.
Furthermore, in general, judges rule that it is a rental contract but with the price clause “absolutely null and void.” And then it ends in the setting of the rental price with experts appointed by the court and 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),
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 vegetative growth of the population is higher than the number of homes and there is little incentive for builders to build properties for investors who rent them,” he details.
The indicator was at levels similar to those in 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 profitability value we must subtract the 24% that it loses in the three years and that is the real profitability.”
The owners prefer to leave the apartments empty
The explanation is that since the rents remain fixed for a year -because they are updated annually-, as inflation progresses throughout the year and the fee is not updated, that amount loses its 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 of rent on the contract the owner can buy less than half of the things 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 for the owner is the first, followed by the first after the adjustment; The rest give a loss, the least fruitful are those prior to the update (quota 11 and 23) and the worst of all is the quota number 36.
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 the treatment of the Rental Law and face a possible change. The ruling party's proposal proposes maintaining three-year contracts, an update based on CPI and RIPTE and making the presentation of guarantees more flexible. While Together for Change proposes returning the term, updates and adjustment agreed between the parties - the CPI, IPIM or the Wage Index prepared by Indec or a combination - to two-year contracts.
The treatment would be given at a time that has nothing to do with a week ago. However, no one expects great progress: none of the parties - opposition and ruling party - have a majority, and in the event that they achieve it, the half-sanction of Senators would still be missing.
However, it emerged that La Libertad Avanza is working on a new rule in which the parties agree on the conditions of time, updating and currency. 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. “We must not interfere in private contracts otherwise the most vulnerable will continue to be harmed with fewer properties, of lower quality and at more expensive prices,” his post said.
Javier Milei is convinced that the rental market should not be regulated
During the Real Estate Expo that took place this week, the conclusion of the actors in the sector is unanimous: “We must modify the law passed in July 2020 that extended the term to three years, established an annual adjustment based on an index of the Central. Congress did not take up the issue in four years,” was the complaint in the hallways while insisting on the need to deregulate the market and generate greater legal security.
The challenge, then, will be to generate certainty in a market that has been in crisis for years. Almost an odyssey in a country immersed in an economy with inflation and exchange rate instability
www.buysellba.com
Source:
Desde qué piensa Milei hasta cuánto aumentarán: las respuestas a diez preguntas clave sobre los alquileres
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 20, 2023
From what Milei thinks to how much they will increase: answers to ten key questions about rents
By Carla Quiroga
The owners “marked up” the prices by 25 percent to cover themselves from inflation and the tenants fear the annual update established by law.
There are fewer and fewer properties on offer for rent: it is estimated that there are less than 900 in the entire city of Buenos Aires
Agreements with prices closed last Friday fallen, owners who removed the rental signs from their properties, uncontrolled prices, dollarized contracts, and the latent threat of “zero offer.” This is the scenario faced by the tenant who is looking for an apartment today.
1- How did the scenario change after the devaluation?
The rental market is paralyzed and the spillover effect generated by political and economic uncertainty cannot escape. This week, the owners increased the rental values of the properties by more than 25% but still prefer to delay the signing of the contracts. Everyone seeks to protect themselves from inflation “Today I cannot appraise a rental in pesos,” says Soledad Balayan, owner of Maure Inmobiliaria and confesses that she has not received orders for two weeks.“The law passed in 2020, the lack of supply and inflation generated a nuclear bomb in this market in which demand validates any price,” Germán Gómez Picasso, director of Real Estate Report, is direct. Their surveys from the last 10 days indicate that the year-on-year increase in single-bedrooms was 289 percent and in two-bedrooms, 250 percent. “These are increases that occurred due to a lack of supply,” he says and recognizes that there are more and more agreements outside the law: owners rent to family or friends even in dollars.
Given this macro scenario and with a dollar that this week passed $700, the ghost of hyperinflation invades the real estate market. Specialists agree that these scenarios 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 rule if all the rules have been 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 the Argentine Republic, remembers that in Alfonsín's hypermarket all 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 from the contractual will,” clarifies the lawyer, who in scenarios like the current ones advises For those whose contract ends, do not renew them but make extensions of no more than three months with new conditions. Last Friday, the deadline he suggested was one year.
“It is a context in which everyone loses,” Abatti acknowledges and explains that at this time there are different legal shortcuts to be able to dismantle an ongoing contract governed by the current law. One is that established in article 1091 of the Civil and Commercial Code that when an obligation becomes excessively onerous, the injured party may request an adjustment and even termination. In other words, it enables the possibility of reviewing the terms of the contract and even terminating it.
"If the owner feels that the rental value was at a ridiculous 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 - which allows an early demand for eviction. In this case, the judge makes a ruling 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 we have to renegotiate.
2- How much does a rental cost?
Until a few weeks ago, renting a studio apartment cost $143,825 per month, a one-bedroom $176,244 and a tow-bedroom $230,178, 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.It must be taken into account 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 ongoing contracts once a year - which is established by the Central Bank and crosses salaries and inflation.
Another piece of information to take as a reference is that the price variation recorded 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). %).
3-How much will they increase after the devaluation?
“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 ones on the ICL has only just become apparent.” will be felt in November, the month in which whoever has to carry out the annual update will suffer an increase of more than 130%. That is, 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% monthly that with the exchange rate adjustment of recent days could shoot up to 25% between these last two weeks of August and September, a percentage that will be reflected in the November ICL,” 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 contracts are closed outside the law
In a context of rampant 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,” maintains González Rouco, author of the book Dueños o Tenants. That is why those who have to update the annual adjustment until mid-September will still run at 6.3%, the July inflation number, which is why they will not yet feel the shock of this devaluation and its impact on prices.
4- How does the devaluation impact rents 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, that percentage has already increased for tenants in pesos in just three days,” analyzes González Rouco.5- Is it risky to close a contract in dollars?
Renting in dollars has always been used in Argentina and much more so in the last two or three years. From this, Mariano Esper, a lawyer specialized 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, “you cannot prevent the tenant from showing up one day with a lawyer and litigating saying that it is impossible for him to pay it, that his income is in pesos, that he does not have enough money to buy. dollars and then ask that they take into consideration the modification of the contract on a temporary and/or definitive basis.” Along the same lines, 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 a 'thing'. Otherwise the owner runs the serious risk of ending up in court to bring it to a lease contract and not an unnamed one. And meanwhile he doesn't pay the rent because no one can force him to pay anything," He states that he estimates that this type of trial will take no less than a year and a half.Furthermore, in general, judges rule that it is a rental contract but with the price clause “absolutely null and void.” And then it ends in the setting of the rental price with experts appointed by the court and 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),
6- Who were the winners of the last few weeks?
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 one dollar that was trading at $605. and a distant inflation that will close the next few months. The other “winners” were those who had the annual adjustment (ICL) of their contracts in progress before the PASO because the inflation and salary numbers that the ICL weighted were from the end of May.7- Is there really a risk of zero supply?
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 signs anticipate that this decline will deepen. “These are worrying data because the estimate is that in CABA there are 400,000 tenant households,” 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," 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 vegetative growth of the population is higher than the number of homes and there is little incentive for builders to build properties for investors who rent them,” he details.
8-What will happen to profitability?
On the other hand, owners with an ongoing contract will feel the shock of a drop in profitability, a margin that had improved in recent months and which in July stood at 5.24% (gross), according to Zonaprop.The indicator was at levels similar to those in 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 profitability value we must subtract the 24% that it loses in the three years and that is the real profitability.”
The owners prefer to leave the apartments empty
The explanation is that since the rents remain fixed for a year -because they are updated annually-, as inflation progresses throughout the year and the fee is not updated, that amount loses its 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 of rent on the contract the owner can buy less than half of the things 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 for the owner is the first, followed by the first after the adjustment; The rest give a loss, the least fruitful are those prior to the update (quota 11 and 23) and the worst of all is the quota number 36.
9-Will there be changes in the Congress session next Wednesday?
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 the treatment of the Rental Law and face a possible change. The ruling party's proposal proposes maintaining three-year contracts, an update based on CPI and RIPTE and making the presentation of guarantees more flexible. While Together for Change proposes returning the term, updates and adjustment agreed between the parties - the CPI, IPIM or the Wage Index prepared by Indec or a combination - to two-year contracts.
The treatment would be given at a time that has nothing to do with a week ago. However, no one expects great progress: none of the parties - opposition and ruling party - have a majority, and in the event that they achieve it, the half-sanction of Senators would still be missing.
10-What is Milei's position?
Regarding the “Milei effect”, the intuition of the real estate market is that the candidate is not focused on this issue. “His vision is that everything is private, so why should a president get involved in an agreement between a landlord 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 emerged that La Libertad Avanza is working on a new rule in which the parties agree on the conditions of time, updating and currency. 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. “We must not interfere in private contracts otherwise the most vulnerable will continue to be harmed with fewer properties, of lower quality and at more expensive prices,” his post said.
Javier Milei is convinced that the rental market should not be regulated
During the Real Estate Expo that took place this week, the conclusion of the actors in the sector is unanimous: “We must modify the law passed in July 2020 that extended the term to three years, established an annual adjustment based on an index of the Central. Congress did not take up the issue in four years,” was the complaint in the hallways while insisting on the need to deregulate the market and generate greater legal security.
The challenge, then, will be to generate certainty in a market that has been in crisis for years. Almost an odyssey in a country immersed in an economy with inflation and exchange rate instability
www.buysellba.com
