What governments around the world are doing to counter high rents

There are restrictions with which Germany is not alone. In other countries, too, the market is being regulated more and more in view of rising prices. What are other governments in Europe and overseas doing? And what effect do politicians hope for? The Handelsblatt correspondents have compiled examples of how other countries act when it comes to real estate, where they set up hurdles – and what consequences this has for the market.

Spain: New editions from 2022 for institutional property owners

In Spain, rents are so high that young locals in particular cannot afford their own apartments. In view of this, the government in Madrid was forced to pass a draft of a new housing law at the end of October, which should curb rising rents from 2022. In the bill, the government is particularly strict against large property owners.

The draft gives the 17 autonomous regions of Spain the right to define areas in which the housing market is particularly tight – similar to what is already the case in Germany.

In Spain, according to the draft law, this occurs when the average cost of mortgage or rent, together with utilities and housing taxes, exceeds 30 percent of household income in the autonomous region; or if purchase and rental prices have risen five percentage points more than the consumer price index in the respective region in the past five years. In such areas, the regional governments should in future be able to force owners of more than ten apartments to lower rents. For new rentals, they must be based on a rental price index.

How exactly this will look is still unclear, as the government has given itself 18 months to develop the index for tight rental markets. Unlike institutional real estate companies, private landlords in tense areas should not be tied to the planned rent index. However, they must grant their tenants the right to extend the rental agreement for three years under the existing conditions.

In the case of new contracts, the rent is limited to the amount of the previous contract. The draft law also provides incentives for private landlords to lower rents in areas with particularly high rents. If private landlords there lower the rent by at least five percent on new contracts, 90 percent of their rental income is tax-free. However, anyone who owns more than ten apartments or at least 1500 square meters is a large property owner according to the definition of the Spanish government – and there is no tax incentive, but an index compulsion.

Institutional investors are already warning of bottlenecks in the market. “Those who have been thinking of investing in Spain are now waiting for the time being,” says Atlas CEO Alejandro Bermúdez about his customers. The largest institutional real estate investor in Spain is Blackstone with around 40,000 apartments. A spokesman said on request: “This step to further regulate rental housing construction will contribute to the shortage of new apartments in Spain and limit urgently needed investments to modernize existing residential properties.”

New Zealand: New tax rules in the fight against skyrocketing house prices

New Zealand’s real estate market is one of the most expensive in the world – and the purchase costs are rising to new records: The median price for residential real estate in the island state climbed to the equivalent of 556,000 euros in November – 24 percent more than a year ago.

From the point of view of the population, it is largely clear who is to blame for the development: two thirds of New Zealand’s residents see the business of real estate investors as the main reason for the high costs, according to a survey carried out by the Kantar opinion research institute on behalf of a local real estate portal at the beginning of December.

The government of Prime Minister Jacinda Ardern takes a similar view and is trying to curb speculation with changes in tax law. Since October 1, investors can no longer deduct mortgage interest on residential property that they have acquired since the end of March. For properties that have already been purchased, the tax benefits are expected to expire by 2025. There are exceptions for new buildings. “Taxes are not the cause or the solution to the housing problem, but they do have an impact,” said Treasury Secretary Grant Robertson.

However, the government’s measures have so far not led to an easing of the pressure on the housing market. For the coming year, economists are also expecting a further increase in prices – however, at four percent, it should be significantly lower than last, according to a survey by the Reuters news agency and real estate analysts.

From the point of view of observers, however, the greatest impact on the further market development is likely to have the monetary policy of the New Zealand central bank. It raised the key interest rate by 25 basis points to 0.75 percent in November and assumes that interest rates will rise to two percent by the end of next year. This would make real estate financing less attractive. In view of this development, it can be assumed that house prices will come under pressure in the future, according to an analysis by the bank.

Switzerland: When the Lex Koller strikes

Foreigners who want to buy an apartment or house in Switzerland should have a residence permit – otherwise the hurdles when buying real estate are very high. Non-Swiss who are not resident in the country fall under the so-called Lex Koller. You must obtain a permit from the responsible canton when purchasing real estate. This applies both to residential properties in cities such as Geneva or Zurich, as well as to classic holiday properties. However, commercial real estate is not included.

An exception are quotas for second homes, which some holiday regions can reserve for sale to foreigners without a permit. In some holiday regions, a maximum of 20 percent of the apartments on the market may be sold to non-Swiss people. In addition, the construction of new holiday properties is also severely restricted. The Andermatt ski area is one of the few regions that does not have any restrictions on sales to foreigners.

Lex Koller cannot be undermined by founding a company based in Switzerland. “Relevant for the authorization requirement is the status of the underlying beneficial owner,” says the real estate agent Engel & Völkers. Only investments via exchange-traded real estate funds are possible for non-Swiss without restrictions.

However, the strict requirements for foreign investors are hardly damaging the real estate boom in Switzerland. In the second quarter of 2021, the average price of a condominium climbed by 5.4 percent, according to the major bank UBS. It was the sharpest price hike in eight years. Demand remains high, especially in the absolute luxury segment. UBS’s real estate bubble index is currently at 1.9. From values ​​of two, the bank’s analysts speak of a bubble.

Denmark: Foreign buyers have almost no chance

More and more Germans dream of owning a house or an apartment in the northern neighboring country of Denmark. But it’s not that simple: In contrast to Finland, Sweden and Norway, buying real estate in Denmark is subject to extensive restrictions.

Before joining what was then the European Community in 1973, the little kingdom negotiated several exception rules, so-called opt-outs. This includes that foreigners who do not have a permanent residence in Denmark are not allowed to buy real estate. This also applies to foreign companies that do not have a permanent seat in Denmark. This makes it extremely difficult for a foreigner to buy a residential property or a holiday home.

An exception to this rule can only be granted by the Danish Ministry of Justice. According to a ministry spokesman, this happens relatively rarely. Only those who have lived in Denmark for five years or have moved their main residence to the Kingdom can, after careful examination, obtain a special permit for the purchase of a property.

Anyone who can prove particularly close family, cultural or business ties to Denmark can also hope for a special permit. Anyone who works in Denmark, is doing an apprenticeship, has family ties to Denmark or who can prove that they take regular holidays in Denmark could also receive a permit.

However, the restrictions have not harmed the demand, especially for summer houses: Due to negative interest rates and high domestic demand for summer houses and other real estate, prices have risen significantly in recent years. Copenhagen has long been considered one of the most expensive metropolises in the world for property buyers.

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