The new housing law and its impact on the real estate market in Mallorca

The Ley de Arrendamientos Urbanos, also known as " Housing Law ", is currently undergoing a series of significant changes that could have a major impact on the rental and real estate market in Mallorca and throughout Spain. These changes, which are expected to take effect from May 28, 2023, are intended to address growing concerns about inflation and housing affordability on the island of Mallorca and in other regions of the country.

One of the most important reforms concerns limiting the increase in real estate rents in Mallorca and other urban areas. Until now, the Law on Urban Leases allowed rent increases to be based on the Consumer Price Index (CPI). However, since March 2022, the measure used to contain inflation is the Guarantee and Competitiveness Index, which does not exceed 2%. This measure will be maintained until the end of 2023. The new housing law grants the National Statistics Office the possibility to set a new reference index, thus finally eliminating the dependence on the CPI.

In addition, the new law provides a cap of 3% for rent increases in Mallorca if the landlord is a large landowner on the island and other urban areas. For those who are not, after applying the annual update clause, the rent may not be higher than that of the previous contract, unless certain conditions are met that allow increases of up to 10 %. These conditions include energy efficiency improvements, accessibility improvements, or a lease term of 10 years or more. In addition, it is prohibited to pass on to the tenant any fees or costs that were not provided for in the previous lease.

For new real estate leases in Mallorca and other urban areas, the restrictions vary depending on whether or not the landlord is a large landlord. For landlords who do not meet the definition of a large landlord, the rent may not be higher than in the previous contract, unless certain conditions are met that allow increases of up to 10 %. On the other hand, the rent for large tenants will be adjusted according to a system of reference price indices that will be published in the future.

Importantly, while the law defines large tenants according to the number of properties they own, it allows autonomous communities to adjust these thresholds in particularly busy residential areas in Mallorca and in other areas, providing some flexibility to address local conditions.

In summary, the proposed amendment to the Municipal Rental Law, also known as "Housing Law", aims to balance the interests of landlords and tenants in the real estate market in Mallorca and throughout Spain. The final impact will depend on how these regulations are applied and adapted to the local context in Mallorca and other regions. If you are interested in investing in real estate in Mallorca, these regulations can have an important impact on your investment decisions.