If, as I do, you work in real estate it can sometimes seem as if the world is on fire. We’re constantly being bombarded on all sides by seemingly negative developments. For sometime now, the rental residential market has been depicted as consisting of rogue landlords bent on profiteering from their poor tenants. Yet this doesn’t tally with my experience of the past 16 years. Many of our clients are private investors and lease one or two (mostly well maintained) properties and work hard to keep their tenants satisfied. They earn some money from doing so but at the same time are exposed to an enormous amount of risk: tenants failing to pay the rent, properties plummeting in value or lawmakers so blatantly taking the side of the tenant that landlords end up seeing almost all their profits evaporate.
If you believe the media, there’s only one solution left to landlords: sell your rental properties! Yet I wonder whether this really is the best solution. It certainly won’t benefit tenants. If the deregulated rental sector shrinks further, even more property-seekers will find themselves excluded. Even viewed purely from the perspective of real estate investors though, the question remains whether selling is the best idea. Some of the reasons why landlords are now opting to sell their properties are in fact nowhere near as negative or pressing as the media would have us believe. Allow me to explain.
Reason 1: the high tax burden is eating up all the profit
Taxation in box 3 has been the target of fairly radical reforms in recent years by an indecisive legislator who seems unable to come up with a fair solution.
Why not take a look at our blog on this topic? The Supreme Court appears to object to the current transitional scheme and the final tax burden may well be lower than expected. Our advice is still to file an objection to your tax assessment as there’s a significant chance of this being successful. We also have to remember that a transitional scheme is in place at the moment. As its name suggests, it’s of a temporary nature. The idea is that a fairer system based on actual returns will apply from 2027. The average real estate investor has a horizon of more than a couple of years, so selling now for tax reasons could turn out to be unwise.
Reason 2: temporary tenancy agreements are to be abolished
This isn’t entirely true. As of 1 July 2024, restrictions will indeed apply to tenancy agreements with a maximum term of two years as introduced in 2016. They aren’t being abolished but in future may only be used for specific groups of tenants. There are still plenty of options for leasing properties temporarily. We’ve written about this in a previous blog entitled De Wet vaste huurcontracten (Fixed-term Tenancy Agreement Act).
Reason 3: mid-segment rentals
The Mid-segment Rental Act is heading for parliament. However, both the Lower and Upper Houses of the Dutch Parliament first need to debate it, so there’s no need to panic just yet. If the law is passed, it will only apply to new tenancy agreements and all being well its impact will be assessed regularly. As I’m almost certain this law will be extremely bad news for those seeking properties, the outcome of any review won’t be especially positive. So this would only be a reason to sell rental properties once there’s clarity on the law and on its negative impact on specific properties.
If this law enters into force, it will in fact yield opportunities for real estate investors. Rents for homes that fall outside this regulation will shoot up in price. An effect that no-one really wants, but all those divorcees, expats and couples moving in together for the first time have to live somewhere and we know all too well what happens to prices when there’s a shortage of rental properties.
If a future Dutch government also decides to address the ridiculously high transfer tax, it will slightly increase the appeal of such decisions.
Reason 4: the Good Landlord Act
We’ve written a blog on this topic too. Since the Good Landlord Act entered into effect, a number of rules have been added that landlords have to abide by. Although things are rather one-sided – there is, for instance, no helpdesk for reporting bad tenants – bona fide landlords won’t be unduly bothered by this law. Some administrative tasks have been added, including a duty of disclosure, but many of these will be dealt with by rental agents and managers.
Reason 5: what should you invest in instead?
Private real estate investors have the means to invest, sometimes via a loan but not always. In many cases the proceeds from the sale of an investment will need to be reinvested, for example because the investment forms a retirement provision. Despite the prevailing storm, Istill think that investing in bricks and mortar can be a good idea. Don’t forget it’s an investment that won’t completely lose its value overnight. In fact, property values are forecast to rise even higher.
Consider all the aspects carefully before acting and don’t allow yourself to be governed by the gloomy tone in the media and real estate sector. There’s a solution to every specific situation. We’re more than happy to discuss this with our clients, including for those few cases in which selling turns out to be the best option after all.
