The National Institute of Statistics (INE) published the reference index for the annual update of rental contracts on Wednesday. This index was 2.09% in April of this year compared to the previous year, an increase from 1.98% in the previous month.
Rental contracts whose rents are being updated starting this year and signed since the Housing Law came into force on May 25, 2023, are required to use this new index, compiled by the INE, to review their rent.
The statistics office publishes this index monthly. It serves as the basis for the annual adjustment of residential rents and is rounded to two decimal places. The most recent available monthly data is used to determine the price at which rental contracts signed after May 2023 will be revalued.
The index takes into account the Consumer Price Index (CPI), core inflation, and the difference between the annual growth rates of the CPI and core inflation for each month. In addition, a parameter, established at the suggestion of the Directorate-General for Economic Policy, is taken into account, which relates to the expected long-term growth of the index.
A moderation coefficient is applied to these differences. This coefficient is determined jointly by the Directorate-General for Housing and Land of the Ministry of Housing and Urban Development and the Directorate-General for Economic Policy of the Ministry of Economy, Trade and Industry and is based on the realities of the residential rental market.
Thus, the reference index, which serves as the limit for the annual update of residential rents, is set as the minimum value between the annual rate of change of the CPI, the annual rate of change of core inflation, and the adjusted average annual rate of change, calculated according to the approved methodology.
By publishing this index, the Statistical Office complies with the eleventh additional provision of the Right to Housing Act, which stipulates that the body must establish a reference index for the annual update of residential rents by December 31, 2024, to avoid disproportionate rent increases. In 2024, the rent update was exceptionally limited to 3% due to the price increase resulting from the war in Ukraine.
However, this cap is not the only measure the government has taken in response to the inflation crisis caused by the war in Ukraine. The executive branch has already, through a Royal Decree-Law, limited the annual update of leases for 2022 and 2023 based on the Competitiveness Guarantee Index (IGC) to 2%, which may never fall below 0%.
For leases signed before May 2023, the annual rent will continue to be updated according to the Consumer Price Index (CPI) or the IGC data, as agreed in the respective lease.
According to sources from the Ministry of Housing and Housing, the annual revaluation of these rents will be based on the inflation data at the time of each update or the IGC, depending on the conditions stipulated by tenants in their contracts before May 2023, and this may never exceed 2%.
