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Does the regulation of mid-segment rentals spell the end of the deregulated sector?

The sad reality is that we can only let ‘our’ residential properties to one house hunter at a time. One of the biggest frustrations of the last few years is that for every happy tenant we need to disappoint an average of twenty to thirty prospective tenants. Admittedly they’re not usually people on low incomes seeking to rent social housing but often people in the throes of a divorce, expats or young people moving in together for the first time. Tenants who have every right to a good home. People who are generally seeking a temporary home in the deregulated sector, for whom buying their own home or renting social housing is simply not an option.

The government has spent many years virtually ignoring the deregulated sector. Luckily, private investors were prepared to meet the demand for homes in this segment and even take on the risk involved in investing in and letting residential properties. As in any sector, you will of course find extreme cases of landlords who bend the rules. Were lucky enough not to come across this type of landlord very often in our day-to-day work, as this nearly always involves homeowners who in addition to earning a (modest) return on their investment help to provide one of the basic necessities of life and contribute to a healthy deregulated rental sector. And believe me, many of these landlords are satisfied with a net return of one or two percent. This means that when the dishwasher needs replacing or the roof leaks, they earn absolutely no return for a few months.

Yet Minister De Jonge thinks it’s better to throw the baby out with the bathwater. If the recently proposed measures are indeed introduced, the section of the deregulated sector that we’re familiar with will on the one hand shrink drastically and on the other become significantly more expensive. I’m curious as to where all the divorcees, expats and newly-cohabiting couples will end up living after 2024.

Tax burden in 2023

Before we get that far though, there are a number of tax measures on the agenda for 2023. An increase in the vacant possession ratio, an alteration to the way loans are included in box 3 and a higher notional return on investments will create a higher tax burden in 2023. Vastgoed Belang, an association that represents the interests of private property investors, has calculated the impact on (private) residential property investors for a range of scenarios. We will devote a blog to this topic soon.

Letter to parliament on mid-segment rental regulation

On 9 December 2022, Minister De Jonge outlined his plans for the deregulated sector in his Letter to parliament on the regulation of mid-segment rentals”.
Until now, we have always distinguished between the social housing sector and the deregulated sector; from 2024, the government wants to add a third category of midsegment rentals. These are properties that are awarded between 149 and 187 points under the residential property valuation points system (as it stands now) and on which a new tenancy agreement is being concluded. This change will therefore not apply to existing tenancy agreements. These residential properties will be linked to the points table in which the maximum permitted rent is determined by the number of points.

For example, a home with 185 points would then be subject to a maximum rent of €1,015.31 (2022 points table).

The rationale behind this policy is to put a cap on what are already sharply higher rents. The primary risk, however, is that this will squeeze returns so hard that investors have no option but to sell these properties. This especially applies to investors who have bought properties in recent years. Unfortunately, this will affect not only private landlords but also large-scale housing projects involving hundreds of rental properties and those projects that haven’t even been started yet and are all on hold.

This will further erode the deregulated sector; residential properties with fewer than 187 points may well be sold if it’s no longer financially viable to retain them. Prospective tenants will end up practically fighting over those properties with more than 187 points. And I’ll give you three guesses as to what will happen to rents

What to do

Thankfully, we’ve not yet reached that stage. The minister has only written a letter to parliament; a legislative proposal still needs to be submitted and then parliament will need to debate it. Parties such as Vastgoed Belang, IVBN (Association of Institutional Property Investors in the Netherlands) and a number of large investors have already given their feedback and warned of the potential far-reaching consequences and legal objections (our network partner Huib Hielkema of Hielkema & co has written extensively on this topic).

As long as the final terms and conditions are unknown it’s difficult for us to offer appropriate advice but it would be a good idea to maximise the number of points awarded to a property. The best way of achieving this is to improve the energy label. This is likely to account for a higher number of points in the system in future. In other words, invest now in energy-saving measures (which are good for the planet anyway) to avoid squeezing the return on your residential properties further.

There are other possible tips for anticipating these measures, such as extending existing tenancy agreements or (re)investing in properties that are (far) above the limit of 187 points. Our offices will be happy to talk through the options with you as these depend on your personal situation and customisation is what we do best.

Are you looking for more information? Contact us directly.

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