How developments in Dutch residential real estate might affect your business model as an investor
As the Netherlands is currently facing a great shortage of affordable housing, the Dutch government has recently introduced a cap on rent indexation in the liberalized sector and further limited indexation in the regulated sector. Ahead of Budget Day 2021, investors should be aware that rent regulation for liberalized units, particularly middle priced units, is currently high on the agenda in Dutch politics.
Developments in Dutch residential real estate
The Netherlands is currently facing a great shortage of affordable housing. The market has a particular shortage of mid-market rental housing, which in general is considered housing with a monthly rent between EUR 750 and EUR 1,000. To increase the affordable housing stock, the Dutch government has i.a. introduced caps on rent indexation and has announced that it will (further) investigate other options to achieve this objective. These developments might affect the business model of (prospective) investors in Dutch real estate.
Cap on indexation
The residential market can be divided into two sectors: the regulated, social housing sector (gereguleerde sector) and the non-regulated, liberalized sector (geliberaliseerde sector). Properties for which the landlord and the tenant have agreed upon a starting rent of less than the rent control ceiling (liberalisatiegrens), which is EUR 752,33 as of 1 January 2021, are considered regulated, meaning that they are bound to a maximum rent and indexation level. The liberalized sector concerns leases with a starting rent above the rent control ceiling and is – as regards national civil tenancy legislation – not bound to restrictions when it comes to the initial rent that can be charged.
The majority of residential properties falls within the regulated sector and is, as a result, subject to stricter governmental supervision. One of the most important elements of this governmental supervision is that both the rent level and the annual indexation level are subject to certain caps, as set by government. In the past, it was only allowed to index the rents of regulated units with a maximum percentage annually determined by the government, depending on the annual income of the tenant(s) concerned. However, starting from 1 July 2021 up to and including 30 June 2022, the Dutch government has set indexation of rents for all regulated units at 0%, regardless of the household income.
Legal restrictions on the annual rent indexation historically only applied to regulated units. However, the annual rent indexation of liberalized properties are no longer fully at liberty of the parties involved. The government considers that the current historical shortage of housing combined with the expected economic crisis due to the coronavirus requires exceptional measures. For that reason, the annual indexation of self-contained properties in the liberalized sector shall be maximized by inflation + 1 percentage point as of 1 May 2021 up to and including 30 April 2024. This means a cap on annual indexation equal to 2,4% for 2021.
Research rent regulation liberalized sector
The Dutch government has recently adopted two motions pursuant to which research into the possibilities and effects of various forms of rent regulation for liberalized units is currently conducted. It will for example be investigated if the rent control ceiling (liberalisatiegrens) should be increased and/or the WWS points system should be extended, which could lead to a regulation of initial rent levels for rents above EUR 752,33 per month as well. The results of this study are expected to be presented by the government on Budget Day in September. Although it is hard to predict if, when, and to what extent legal measurements will be implemented following the results of this study, investors should be aware that rent regulation for liberalized units, particularly middle priced units, is currently an important topic of conversation in Dutch politics. It should therefore be taken into account that the government might take further measures that affect rents in the liberalized market.
If there are any questions and/or if any further information on Dutch residential legislation is desired, please feel free to reach out to Steven Lucas, Marloes Voorrips or Jolien Breukink via the contact details below. We are happy to discuss your case and to provide you with a tailormade advice.