Law 12/2023, of 24 May, on the right to housing, represented a legislative milestone in Spain by establishing for the first time at the national level rent containment measures in the rental market, information requirements for large landlords and a new protection regime for tenants in vulnerable situations. The law entered into force on 26 May 2023 and is already producing concrete effects on portfolio management, asset valuations and investment decisions.
Legal Structure and Entry into Force
Law 12/2023 does not stand alone: it substantially amends Law 29/1994 of 24 November on Urban Lettings (LAU), Law 1/2000 of 7 January on Civil Procedure (LEC) in relation to eviction proceedings, the Land Act (Royal Legislative Decree 7/2015), and the consolidated text of the Real Estate Cadastre Act. Tax legislation is also affected: the law modifies the Personal Income Tax Act (reduction for residential property letting) and the Real Estate Tax Act (surcharge for vacant properties), the latter applicable in municipalities that choose to activate the surcharge.
Stressed Residential Market Zones
The law introduces the concept of “stressed residential market zones”, which autonomous communities can declare in areas where rental prices or housing affordability effort exceeds certain thresholds. In these zones, large landlords — individuals or entities with more than ten properties — are subject to restrictions on rent updates.
The criteria for declaring a stressed zone are alternative — meeting either one is sufficient: (i) the average mortgage or rental cost plus basic utility expenses exceeds 30% of average household income; or (ii) the purchase or rental price has grown cumulatively over the previous five years by more than three percentage points above the autonomous community’s CPI growth. The declaration has an initial three-year validity, renewable annually, and can be lifted if the conditions justifying it cease to apply.
Catalonia, the Balearic Islands and the Basque Country were among the first autonomous communities to activate stressed zone designation procedures after the law came into force. Owners and managers with assets in these regions must actively monitor official gazette publications, as the designation takes immediate legal effect on publication.
Large Landlords: New Obligations
Entities and individuals with more than ten homes have new information obligations to administrations and restrictions on setting rents in stressed zones. The law also limits rent updates to the competitiveness guarantee index (IGC) for existing contracts.
In stressed zones, large landlords face a dual cap on new contract rents: the rent cannot exceed either the previous contract rent updated in line with the IGC, or the maximum resulting from the Ministry of Housing’s rental price reference index. This reference index, whose methodology was published in 2024, sets maximum per-square-metre rents for each census zone based on property characteristics.
The eviction regime is also modified for large landlords. Before filing any eviction claim for rent arrears or lease expiry against a tenant in a vulnerable situation, large landlords must certify to the court whether the tenant is economically vulnerable, through a certificate from municipal social services. Where vulnerability is confirmed, proceedings are suspended for up to two months (individual landlords) or four months (legal entities) while authorities seek alternative housing solutions.
IRPF Changes: Reduction on Rental Income
Law 12/2023 amends Article 23.2 of the Personal Income Tax Act (Law 35/2006) to restructure the reduction applicable to the net positive return on residential property letting capital. The new system, applying to contracts signed from 26 May 2023, establishes a differentiated scale:
- General reduction of 50% on net income (down from the 60% applicable to pre-existing contracts).
- Reduction increased to 60% where the property is in a stressed zone and the new contract rent has been reduced by more than 5% relative to the previous contract.
- Reduction of 70% where the tenant is a young person aged 18–35 in a stressed zone, or where the property is being offered for residential letting for the first time in a stressed zone.
- Maximum reduction of 90% for new market entry in a stressed zone where the agreed rent is at least 5% below the previous contract rent.
This incentive structure aims to stimulate affordable rental supply in high-demand areas, though the complexity of the system and its dependence on autonomous community stressed zone designations make practical application challenging for many landlords.
Implications for Investors
For institutional investors and real estate investment funds, the law creates a new regulatory risk scenario. The declaration of stressed zones and associated restrictions may reduce the expected returns on residential rental portfolios and complicate asset valuation.
In discounted cash flow (DCF) valuation models, analysts must incorporate a regulatory scenario accounting for potential stressed zone designations in the municipalities where assets are located. The sensitivity of value to the rental reference index can be highly significant for portfolios concentrated in Barcelona, Madrid, Palma or San Sebastian: a 10% discount on projected rents may reduce asset value by 8%–12% depending on the base yield and valuation period.
SOCIMIs with residential portfolios must additionally evaluate the impact of the new 3% special levy on gross income from lettings in stressed zones (new Seventeenth Additional Provision of Law 11/2009) and assess whether the SOCIMI tax regime remains optimal for their portfolio, or whether a partial conversion to alternative vehicles — a real estate investment fund or ordinary company structure — offers a more efficient tax burden.
Recommended Action Steps
Any landlord or investor holding more than ten residential properties should carry out a three-step audit: first, confirm large landlord status under the legal definition and any applicable exceptions depending on the autonomous community where assets are located; second, review existing tenancy contracts for compliance with rent update limits since the law came into force; and third, prepare a regulatory risk map identifying which portfolio assets are exposed to stressed zone designation and quantifying the potential impact on cash flows and valuations.
At BMC we advise owners and investors on adapting to the new regulations and portfolio optimisation alternatives. See our real estate law services.
