Founder and CEO of Will To Capital (W2C) , Real Estate investments management firm based in Barcelona, Spain.
When we talk about things that can have a big impact on the real estate market, politics is an important one. A friendly political climate for real estate can make a market grow while an unfriendly one can weaken a market. But what kinds of things affect a market favorably or unfavorably? Let’s see some examples:
Tenant-Friendly Versus Landlord-Friendly Policies
This contention is probably the most common issue. There are some countries and states that tend to make laws that protect the tenant more than the landlord and there are other areas that do the opposite. Tenant-friendly laws are usually less advantageous for real estate investment and leave investors less protected. These policies include rent price controls, more circumspect screening, obligations for long-term contracts and difficulties in the eviction process.
On the opposite side, landlord-friendly policies include more protection for landlords in case of default (with an easier eviction process) and free market prices for rent. I see how laws and policies more friendly to tenants tend to scare investors who might then invest in other areas. For example, in the U.S., California tends to be more tenant-friendly while Florida’s laws are more protective of the landlord. The result has been a significant increase in investment in Florida with many investors avoiding California.
Ultimately, landlord-friendly policies are at ends with tenant-friendly policies. That’s because any of these policies have the goal to place one as having an advantage on the opposite side.
If it is easy to get a license, how long will it take to have it? And if you already have a license, what are the restrictions? Time is money and investors know that. There are countries or cities that tend to make things easy to make new projects, and this will always attract new investors. But if the process to get a license is complicated and long, this can scare new investors.
Basically, the major hurdles to licensing I see include:
1. Not enough people working in the public adminsitration and/or the people working in administration positions not being motivated to fix the issue.
2. A lot of technical requirements like excessive studies.
3. Redundancy with too many departments having to approve or review the license.
Simplifying all the processes would help a lot in creating a stronger real estate market. In my own experience, I find that small towns or villages in Spain usually take less time while big cities always seem to take more time.
Another important point is once you get your license, is it conditioned on something or can you simply move on and execute the project? Let’s see an example: Since 2018, Barcelona has established that all new developments made in the city need to include 30% toward social housing .
Because of this, I’ve seen many real estate investors move to other areas of Spain like Madrid where there are more facilities and opportunities for new construction. Partly because of this, the demand for housing in Madrid has increased while reports show that much of the new construction in Barcelona has halted .
There are many taxes related to real estate such as capital gains, property tax and wealth tax; the way governments regulate these taxes can make the real estate market more or less friendly for investors. Usually, investors try to find areas with lower taxation to maximize the ROI of their investments.
Sometimes different areas compete to attract real estate investors through tax policies, creating attractive proposals. Let’s see some examples:
• Tax havens like St. Kitts and Nevis or Antigua and Barbuda often compete to convince foreign investors to invest in their countries. There is even an incentive to become a citizen for those who invest a certain amount into real estate in the nations.
• In Europe, Spain has a capital gain tax of 25 %, but the microstate of Andorra has a capital gain tax of 10 %. This much lower tax has helped Andorra attract investors from Spain and elsewhere and created a boom in real estate development, specifically from foreign investors .
Urban Zoning Laws
Urban law dictates where and what it is possible to build, and it is crucial for any real estate developer to understand. There are places where you can build 20-story buildings while in other areas you can only build two floors; some places may allow you to have many smaller apartments in the same building while others will only allow you to have a few larger apartments. These zoning laws have a huge impact on the kind of projects that are possible.
As an example, my company recently studied a plot to build a multifamily building in Spain. The plot had a sizable area and the price was reasonable. However, when we studied it, we realized that there were stipulations like the ground floor having to be retail as well as restrictions on the number of apartments allowed. So a plot that initially looked nice became a no go due to the zoning laws.
As you can see, politics and the resulting policies and zoning restrictions are important for the future of the real estate market. The way the laws are regulated can influence how a market grows or retracts. In the end, it is important to understand the laws and policies for varying regions and seek leaders who can champion the real estate point of view.