Rentals 2021: risks and challenges for tenants and owners

Natalia Muscatelli

01/16/2021 12:00 AM

• Clarín.com

• Economy

Updated 01/16/2021 12:48 PM

In 2020, the year in which the new rental law was enacted, which came into force on July 1, the rental market

took on a different dynamic

with respect to the routine that had been occurring in the contractual relationship between owners and tenants.

First, there were

significant price rises

, in many cases above inflation.

In addition, profitability remained at historically low levels and the supply of properties for rent was reduced due to the uncertainty of the owners regarding the new rules of the game, according to the real estate companies.

All of this resulted - for different reasons - in a

disadvantageous situation for both parties

.

From the point of view of Gervasio Muñoz, head of Agrupados Tenants, "it is not that there is a lack of supply of properties, but rather that there is not so much replacement because permanent removals have been greatly limited since the quarantine began," he says.

"There is not much supply as before because there is not so much moving," he explains under the argument that this situation "has nothing to do with the validity of the new law."

In addition, according to the leader, “today there are more notices for temporary rentals than for permanent housing.

And that is to make short contracts and thus evade compliance with the law, "he describes.

On the other hand, according to the diagnosis of Armando Pepe, president of the College of Real Estate Brokers of the City of Buenos Aires (CUCICBA) “from the effective date of the rental law, with three-year contracts and fixed rents that are adjusted according to a Central Bank index (calculated according to a mix between the evolution of wages and inflation), the owners raised the value of rents because with a projected inflation of 50% they think they are going to be left behind ”, he explains.

“For this reason, there are many owners who withdrew their properties from the offer and put it up for sale, with which there are many tenants looking for real estate.

What consequences does it bring to the real estate sector?

It is questioned.

"That investors who bought to rent, for example, to supplement a retirement, keep the dollars and do not make any investment," he sums up.

According to the real estate broker, Oscar Puebla: "the logic of the market is to have more supply so that the price falls, however, today is the kingdom of the reverse: controls and adjustments with an index against the real inflation, contract terms more long, which leave under the water a profitability that was already bad before COVID, "he complains. Consequence?

An announced end

. Fewer properties, more expensive and with more requirements to get rent." It is unfortunate that they continue to think that the The solution is to confront landlords and tenants.

These two players are victims of the same disorder, "he describes.

Also for Daniel Zampone, an entrepreneur in the sector, "rents went up more than they should have as a result of the sanction of the rental law." Due to the unfavorable changes introduced by the law, many owners chose to withdraw the property from the market of rents and that increased the price by at least 60%. Consequently,

the law was not favorable for the tenant either

. Historically, the update was always below inflation. For example, last year. contracts were reached to update with a rise of 36%, maximum 40%, well below annual inflation ”, he describes.

“The law harmed the parties.

Owners to hedge against inflation choose to hedge with the price in advance.

The photo we have today from the point of view of the tenant is of little product to rent and very expensive.

From the owner, it must be said that he cannot dispose of his property for three years, while the tenant can terminate the contract, "he adds.

"Those owners who choose to continue renting their property, increase their claims in order to be covered. At the moment the owners are studying new investments that achieve greater profitability than renting their properties" agrees developer Horacio Ludigliani.

Price dynamics

Rental prices, during the past year, recorded increases ranging from 35% to 62%, according to different measurements.

For Real Estate Report, which always takes the same type of property: a standard used apartment, of medium quality without amenities, without garage and without expenses, the increase (until November) was in line with inflation that ended the year with an increase of 36%.

"The rents of a 2-room apartment rose 34.6% on average and that of three rooms, 38.03%," he analyzed.

In this way,

the average value of the entire city

for used 2-room apartments in November 2020 exceeded $ 20,605, while the 3-room units traded on average close to $ 28,000.

According to data handled by the classifieds portal ZonaProp, the year-on-year rise in locations reached 62%, the strongest increase in the last nine years.

In the case of rentals in Greater Buenos Aires, a report from this platform indicates that a 2-room rental in the North Zone costs 7% more than a 3-room rental in the West-South Zone.

In the North Zone a 2 room apartment and 50 m2 amounts to 29,388 pesos per month, while in the West-South Zone the rent for a 3 room is 27,420 pesos per month.

When the quarantine began, to mitigate the potential impact of price increases among tenants, the government issued a decree (320) that

froze rental prices, evictions and the extension of the term of contracts

.

Since then, these regulations have been extended twice and the last one expires on January 31.

For this reason, the group of tenants is asking the authorities to postpone this measure.

While, from the business chambers, they use the same resources to achieve the opposite objective.

According to Muñoz, “today the tenants' situation is one of indebtedness: they have not been able to pay the rent for months, they do not have money to be able to move due to the strong price increases but also because entering a new home requires a lot of money between the deposit, the month in advance and the commissions charged by real estate companies well above what the law stipulates, ”he says.

And he

exemplifies

: "in the province of Buenos Aires they charge for stamps even though they should not be charged for the 2020 tax law," he complains.

According to the leader, those who can still pay the rent, allocate

half of the income only to pay the rent of their homes

.

And, the situation "gets more difficult when there is loss of employment and deterioration of wages," he says.

Profitability, through the floor

For the owners, the situation is

not favorable either

: the profitability that renting an apartment with two or three rooms can offer went this year from 1.75% (annual gross) to 1.85% in the last quarter, according to the Real Estate Report.

This occurred due to the double effect of the increase in rental values ​​and the decrease in the sale values ​​of properties that reached 22% in dollars.

Javier Igarzabal, director of DIC Properties, believes that "rental income fell significantly and is in the order of 2.5 to 3% per year", according to his experience.

“It must be taken into account that business in Argentina and in the world fell significantly and even in many cases disappeared.

This in the real estate market never happens since a property is a safe haven and at times like this there is nothing better than investing in something certain, "he says.

According to his vision, “given the retraction of the market in the purchase of real estate and the fall in prices measured in dollars, it is interesting to buy at this time because very reasonable values ​​can be found that, although they do not make the return on rent a significant percentage generates an income.

On the other hand, one could "bet" on the future increase in the value of real estate measured in dollars once the market is regularized, "he says.

"On the other hand, if you invest in ventures from the well in principle you would be earning the business profit that could be 15 to 20% in dollars thinking about the future value of the finished property and also would achieve a more important location value once the market recovers ”,

said the businessman

with a strong presence in the North of the GBA.

Look also

Commercial rentals, from the quarantine crisis to recovery

Rentals: short-term formulas for structural problems