Post by
incomedreamer11 on Jan 09, 2023 3:01pm
TD comment on update
Event ERES provided an update on the proposed regulation of mid-market rental suites in the Netherlands and amendments to the Housing Evaluation System (link).
Impact: SLIGHTLY POSITIVE
Our Take: While the regulatory changes, as proposed, are largely in line with our expectations, we view this press release as slightly positive given decreased nearterm regulatory risk and confirmation on annual renewal rent increases.
Regulatory Changes
On December 9, the Minister of Housing announced changes to the residential rental market, which if approved, begin on January 1, 2024. Proposed changes introduce a new regulated mid-market segment, which would apply to suites of up to 187 points and correspond to a maximum rent of ~€1,100. Rental increases in the mid-market segment would be capped at the annual wage development figure of +0.5%.
Additional changes to the Housing Evaluation System were introduced that would award more points to energy-efficient suites (A or higher label) and deduct points for suites with lower energy labels (E, F, or G). In addition, for the next 10 years, a 5% surcharge on maximum starting rents would also be applied to newly-built units in the mid-market segment for which construction began prior to January 1, 2025 and was completed after January 1, 2024.
Beginning on January 1, 2023, rental increases on liberalized suites have been fixed to the lessor of CPI + 1% or Dutch annual wage inflation + 1%. For the July 2023 indexation (i.e. renewals), maximum allowable rental increases are set at 3.1%/4.1% for regulated/liberalized suites. ERES expects to achieve 3.8%, (versus 2.95% in 2022) for its portfolio. Combined with gains on turnover, we expect revenue growth to be ~5% in 2023, nicely above the 3%-4% long-term target. Impact on ERES
ERES estimates that ~25% of its portfolio would be impacted by the proposed mid-market regulatory changes. On new leases beginning January 1, 2024, the expected rent differential of ~4% of annualized in-place rent will be incurred only upon turnover and absorbed over a 3-5 year period, which we view as immaterial.
Q4/22 Results. After market close on February 15, 2023. Conference call February 16 at 9:00 am (833-950-0062; pass: 651497).