It is now official, the Affordable Rent Act (Wet Betaalbare Huur) is coming. On June 25, 2024, the Senate approved the legislation, so investors finally know what to expect.
In this blog, we briefly discuss the effects of the Affordable Rent Act and how investors can deal with it.
- The Affordable Rent Act; What does it mean?
- What are the experts saying?
- What does it mean for investors?
- How to invest under the Affordable Rent Act?
The Affordable Rent Act: what does it mean?
- The Affordable Rent Act is intended to ensure that more affordable rental housing becomes available (housing with a rent between €880 and €1,158 per month).
- The Affordable Rent Act was introduced on July 1, 2024. In all new leases from July 1, 2024, you as a landlord are required to apply the maximum rent for mid-range housing.
- The Affordable Rent Act should eventually reduce the rents of 300,000 homes by an average of EUR 190 per month.
- Maximum rents are set for mid-rent homes, based on the Housing Rating System (WWS). Houses are assessed on the basis of area, amenities and energy label.
- The Housing Rating System for non-self-contained housing (WWSO) has also been adjusted. For example, the maximum rental price limits are increased by 25%, allowing a higher rent to be charged. Again, the quality and durability of the property are important.
- It is mandatory law. Municipalities can impose hefty fines if investors do not comply. However, it has been agreed that municipalities will not enforce it until January 1, 2025. In addition, in many cases there is transitional law, which means that as an investor you do not have to adjust the rent immediately, but only when there is a tenant change.
- The Affordable Rent Act thus applies to leases entered into after July 1, 2024. However, for properties that now have up to 143 points, the current lease may also need to be adjusted. Not all homes are covered by the transitional law.
- Example 1: For a house with a current rent of € 700, but a maximum rent of € 650 according to the then current WWS, the rent must be reduced to € 650 on July 1, 2024.
- Example 2: For a property with a current rent of € 900, but a maximum rent of € 650 according to the then current WWS, the rent must be lowered to € 650 by July 1, 2025 at the latest. This gives you as an investor the opportunity to improve the property even further, so that it gets more points and the rent gets a higher value.
- If you have a rental property with 144 or more points, you don't have to adjust anything yet. The Affordable Rent Act then only becomes applicable once the tenant leaves. There is then transitional law.
- This all seems like a positive development for the housing market, since a large group of people depend on (affordable) rental housing. However, as an investor, you are at a disadvantage and there are many doubts about the effects of the Affordable Rent Act.
What do the experts say about the Affordable Rent Act?
Much has already been said and written about the possible consequences brought by the Affordable Rent Act.
- Several banks draw a clear conclusion; the Affordable Rent Act will have major adverse effects on the entire housing market. A wave of sales among investors is expected, the rental properties that remain will continue to rise in price, and the construction of new homes will stagnate even further.
- Several universities and economists have come to similar conclusions. The Affordable Rent Act is counterproductive and will further depress the rental market.
- Of course, the real estate market also has an opinion on the Affordable Rent Act, and not surprisingly, the findings here are not positive either.
All in all, the reactions are quite negative. In any case, the Affordable Rent Act is not going to provide more rental housing.
What does this mean for investors?
Conduct proper research!
As an investor, you need to start right away with doing some proper research about your properties:
- What rental segment does my property fall into?
- What rent can I charge because of this according to the point system?
- What can I do to improve the property? Improving the property can increase the points.
- Does the property fall under transitional law? You may need to take immediate action.
Make the right trade-off and adjust your strategy
As an investor, you are also going to weigh up whether it is still profitable enough to rent out the property, because no one wants to rent out with a negative result.
Take a good look at all the costs involved in renting out the property and set this against the rent you can charge a new tenant. This will give you a good idea of your future net return. This should be in a healthy ratio to the vacant value of the property, because as an investor you do want to be adequately compensated for the value of your property. If the return is insufficient, you will consider selling the property empty.
This makes the development of house prices extra important. After a dip in 2022, we are now seeing a rising trend in average sales prices again. This offers perspective for investors.
Impact on the rental market
The sale of these properties will affect the rental market. Fewer rental housing units will become available, while there is already a shortage of rental housing. Rents in the social and middle segments are now fixed, putting more pressure on free sector rental housing. This is something you can capitalize on as an investor.
How to invest under the Affordable Rent Act?
Investing in properties covered by the Affordable Rent Act becomes a simple calculation.
- You know what rent you can charge, making it easy to calculate the investment that can be made in return.
- With the lower supply of regulated housing, turnover among tenants will decrease. It will be more difficult for them to find a new rental property that fits their budget. As an investor, you can therefore count on a stable rental flow due to fewer changes of tenants.
- As an investor, you would be wise to maintain appropriate cash reserves so that you can invest in home improvement when needed. Home improvement can provide more points. So this becomes an important part of your investment strategy.
- Investing in free sector housing presents opportunities. This is because the new dynamics in the rental market may cause these rents to rise even further. You can then take advantage of this as an investor.
- Selling off properties does give opportunities. You can buy houses with a low (social) rent, but with a vacant value that is higher than the purchase price. You then invest partly for the profit when you sell the property, as soon as the tenant moves out. You often need a longer horizon for this.
So investing in rental properties can still be a good investment, but the Affordable Rent Act does show that as an investor, you must always be aware of new legislation and be prepared to adjust your strategy.
At BRXS, we follow all these developments closely so that we are well prepared and can act appropriately. As an investor, you can benefit from this. You can invest staggered in notes to purchase rental properties that have been tested against the applicable laws and regulations. In our next blog we will take you through the preparations we have made in response to the Affordable Rent Act, because of course we have also looked closely at our existing rental properties.
