What exactly does the Affordable Rent Act (mid-rental) rentail in the Dutch Market

What exactly does the Affordable Rent Act (mid-rental) rentail?

The Affordable Rent Act for the mid-rental segment will soon be defined by the Housing Valuation System (WWS). Currently, this system determines the maximum rent for social housing based on the property’s quality, thus defining which homes fall under regulation and which belong to the free sector.

At present, landlords can set rental prices freely for properties with more than 141 points, but from 2024, the rules will change. The threshold will be raised to 187 points, causing some properties to shift from the free sector to the new mid-rental segment. Properties with a score of up to 187 points will have a maximum rent of €1,026.71 per month.

This means that tenants who believe they are paying too much rent can appeal to the rent tribunal to enforce (substantial) rent reductions. This could affect approximately 150,000 properties. Private landlords fear they will barely be able to generate returns. According to an analysis by the Dutch Central Bank, around 80% of rental properties are rented below the deregulation threshold, both by housing corporations and private landlords.

Moreover, there is an increase in the tax rate for wealth in Box 3, which impacts private investors who, for instance, rely on property investments for their pension. This wealth is taxed under Box 3. Additionally, mortgage interest rates have increased, making new financing more expensive for investors. Both Het Financieele Dagblad (FD) and NOS have reported that private landlords are increasingly putting their properties up for sale.

For real estate investors, there are several strategies to adapt to the mid-rental market. Below are four attractive alternatives for real estate investors:

1. Renovate and improve energy efficiency
   One strategy is to increase the property’s score above the 187-point threshold, allowing it to meet the criteria for exemption from the Affordable Rent Act. It is advisable to seek professional advice to assess whether it is feasible to upgrade the property portfolio and shift it to the free sector.

1. Focus on properties above the mid-rental threshold
   Investors can choose to acquire only properties that score above the 187-point limit. These properties do not require a housing permit, although they mainly target expats, as they are often too expensive for the local population.

1. Wait for rental contracts to expire and then sell
   Another strategy is to wait until current rental contracts expire and then sell the property. An empty property generally yields a higher price than one that is tenant-occupied.

1. Consider investing in real estate abroad
   As a final option, investors may consider purchasing real estate outside the Netherlands, where regulations are less strict and tax burdens may be lower. Popular options include Spain, Portugal, Italy, and Dubai. However, it is crucial to consider the ultimate investment goal, as rental markets in these countries can vary significantly. In Spain and Portugal, rentals are primarily aimed at tourists, whereas in Dubai, a large part of the population consists of expats, enabling both short-term and long-term rental options.Additionally, obtaining a rental license in some regions of Spain can be challenging, so the preference is for properties with an existing license.Dubai offers the most opportunities as an alternative. The price per square meter for new-build properties is much lower than in Europe. This is due to low material costs, cheap labor, and fewer regulations. However, this does not compromise quality, which is often much higher in Dubai. Rental yields are at least twice as high as in the Netherlands, with comparable service charges. The difference is that you get much more for your service charges, such as a 24/7 reception, an infinity pool, sauna, flexible workspaces with high-speed Wi-Fi, a cinema that can be booked via an app, a yoga room, and a padel court. Moreover, each unit comes with a free parking space in the garage.The architectural design of the buildings is phenomenal and forward-thinking—bold, innovative, and aesthetically appealing without compromising on quality. Nowadays, it is often possible to have your property furnished by the developer for an additional fee, with standard furniture packages available. This is highly recommended, as tenants in Dubai do not settle for IKEA-quality furnishings. Instead, furniture packages are designed to match the standards of a five-star hotel, with no expenses spared on quality.

LXRY Properties has a selection of exclusive investment opportunities.

Curious about the best deals? Get in touch with us!