If there is something that has suffered this 2022, it is the pocket of consumers. This year has come with a general rise in prices in practically everything: gasoline, electricity, the shopping basket and real estate. One of the main causes, as we have discussed in Magnet, is war. During 2022 the rises in the CPI have been enormous, a trend that began at the end of 2021 and has been accelerated by inflation. this september has been 9%, coming from 10.5% in August. To mitigate the setback for tenants, the Government established a temporary cap of 2% on the rise in rental prices.
Let’s see how it works and some practical cases to find out if our rent is going to increase in the coming months and how.
The new regulation. To give you an idea of how we were until before the new law, the average increase in rents in February was 53 euros more per month as a result of the 7.6% rise in the CPI that was recorded at that time . This meant 634 euros more per year. And of course, the situation of the tenants made a political intervention urgent. Then the Government decided to temporarily freeze the clause in housing rental contracts that allows landlords to update rents according to the CPI. Faced with brutal inflation, he decided that the increase could not exceed 2% of the price set in the previous contract.
Leading indicator Index of #prices of consumption #CPI. September 2022
Annual variation: 9.0% (1.5 points less than in August)
Underlying inflation. Annual rate: 6.2% (decreases 2 tenths)
Press release: https://t.co/FC3CQIjO0t
Results: https://t.co/a8nE3zpD2i@es_INE #INE pic.twitter.com/2aNMSMOcYe— INE Spain (@es_INE) September 29, 2022
What does it mean? Well, a rent of 800 euros can go up to a maximum of 16 euros per month (192 euros per year). With a rent of 1,000 euros, the rent will rise by 20 euros (240 per year). That is 756 euros per year less if the measure does not exist if it is updated with the current CPI. But beware, this if the contract stipulates in a clause that it is likely to be increased by the IPC, otherwise, nothing is paid. This measure was originally going to be maintained until June 30, 2022, but the Government has extended this limit until the end of December.
But what is the CPI? And how is it calculated? It is the Consumer Price Index, an indicator that measures the impact of the increase in the prices of consumer goods in a country. That is, how much it grows economically. Therefore, if the CPI is positive, it means that prices have risen, and if it is negative, that they have fallen. It is calculated by the National Statistics Institute based on the prices of the products most consumed by Spaniards, the so-called “shopping basket”.
In Spain, the CPI is also used to regulate the increase in rental income in some contracts, although it is not mandatory. In the event that it does appear in the contract, it must be done when an annuity is fulfilled and apply the value published two months before. This year the CPI has risen a lot in recent months, which means that, if there is no cap, if our rental contract expires for a year, we could be susceptible to a significant increase in the rental price.
Practical cases. It must be remembered that the emergency measure will be in force until the end of the year, and then it will be necessary to return to the previous system. It is unclear if it will be extended again. And if we forget about that 2% cap, the calculations are painful for most renters. How many? If a rental contract that is updated in August, takes as a reference the CPI of two months before, that is, of June, which in 2022 was 10.2%, if the tenant paid 1,200 rent, with the revision of the income would have to calculate 10.2% of 1,200 (122.4) and add it. Therefore, you would have to pay 1,322.4 euros in rent until the next update.
If we take as reference the value of the CPI for this past month of September, which was 9%. To 1,000 euros of rent we should add this 9% more, so the rent would rise by 90 euros.
Who is affected. The 2% limit established by the Government only applies to rental contracts for habitual residences such as flats and houses. Leasing contracts for commercial premises, offices, industrial buildings, tourist homes, etc. are excluded. Commercial premises contracts maintain their update by the indicator agreed between owner and tenant. If the CPI is taken as an indicator, it will be necessary to look at the value that it has two months before one year is fulfilled.
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