The Rental Market and Deposits (COVID-19)
In all the major markets the rental market is booming and expected to continue to grow with increased demand particularly pronounced among younger households who are now more likely to be renting than to own a home. While nearly 50% of households in the German speaking countries are tenants, this percentage falls to between 30 and 40% in France, Japan, the UK and the US. Italy and Spain are among those countries with low penetration rates, which are around 20%. These differences are explained by regional idiosyncrasies.
The rental market is fostered by sociological, demographic and labour as well as economic and financial factors. An own property has become less affordable due to and since the financial crisis, and now due to the pandemic.
Rents are politically a sensitive topic as they affect millions of voters. That is one of the reasons why many administrations at any government level introduce price caps and other type of restrictions.
The mentioned shifting consumer behaviour has further shaped the estate agents market through the surge in lettings. Renting has become increasingly popular over the past decade. This has seen demands for letting agents grow, with operators either expanding their services to incorporate this trend or starting new letting agency businesses.
In all markets tenants have to provide a rental deposit demanded by landlords in order to guarantee the obligations under the tenancy agreements. The amount of this deposit varies from 1 month to 6 months depending on the market.
There are mainly 2 categories of rental deposits; cash based or cashless. In the case of cash based deposits tenants have to disburse cash, while in cashless ones there is no need to do so.
In view of the booming rental market letting agents are also looking for new rental deposit alternatives to the traditional ones.
In recent years many start-ups, like AvalVida and DepositPass, are disrupting the rental deposit market with innovative and novel solutions to the benefit of tenants. The assignment of a life insurance policy is one of these solutions and a unique, innovative, cashless, low-cost and one-off and all-in fee rental deposit, which allows rent any property simply, quickly and safely. The tenant – residential and commercial – simply assigns (pledges) an amount of his life insurance savings or annuity policy in favour of his landlord to guarantee the obligations under his tenancy agreement charging an one-off and all-in fee independently from the term of the agreement.
Approximately 10 million new tenancy agreements are signed annually in the EU, Japan and the US, the most important letting markets. In the UK alone 1 million agreements are signed each year, while in Spain this figure is around 600.000.
All these new tenants, including micro, small and mid-sized enterprises, would save a lot of money – 75% or more in fees – for their rental deposit due to the unique one-off and all-in fee of these new solutions while not having to disburse precious cash, left now for urgent matters in tenants’ pockets, especially now in COVID-19 times. Over the term of a 5 years rental agreement the savings in fees could be between € 1.000 to 5.000 or more depending on the rented property; additional precious cash.
The assignment of a life insurance policy and other solutions make housing more affordable for new tenants and help micro, small and mid-sized enterprises save important sums when renting a commercial property for their business. These new rental deposits also help to increase consumers’ financial literacy by using their life insurance policies and other options as rental deposits, while still saving for retirement and without surrendering their policies.
Camilo A. Pieschacón is an economist and insurance and banking executive, with 35 years of international experience in life insurance and global banking in Latin America and Europe. He is a former non-executive member of the Board of Directors of Seguros RGA. He is the CEO and co-founder of AvalVida (Spain), an initiative that reached the semi-finals in the category of Insurtech at the third edition of the Fundación MAPFRE Awards for Social Innovation (2020). He is a regular conference speaker, panelist, radio guest and lecturer thanks to his extensive knowledge of distribution, bancassurance and assurbanking, sales, partnerships, products, start-ups, business development, corporate banking and finance, ratings, and leadership.