The Government's draft law, containing the measures of the "Mais Habitação" program, was approved by the Assembly of the Republic on the 17th of May. The approval was mainly due to the support from the Socialist Party (PS), while disregarding all proposals from the opposition benches, except for one proposal put forth by the Portuguese Communist Party (PCP). The law will now proceed to be discussed in detail and reviewed.
To facilitate the understanding of what was approved, and the intended effects of the “Mais Habitação” program, we’ll go through a summary of it here:
1 – A limitation on the increase of rents in new rental contracts
For houses that have been rented out in the last five years, the values of the rents in the new contracts may not exceed 2% of the rent of the previous one. There is an exception in the case of contracts that have not been updated in the last three years, in which the correction coefficient of those same years is added.
Note: this limitation does not apply for homes with rental values below those of the Affordable Rent Programme (PAA).
2 - Old rents and their update based on the inflation values
Lease contracts prior to 1990, with tenants with an annual income inferior to five national minimum wages, will not be transferred to the New Urban Lease Regime. The same for contracts with tenants 65 years of age or older or with an illness or incapacity over 60%. However, these rents will have a special updating regime, limited to the inflation value, benefiting their owners from the IRS exemption of these incomes as well as from the IMI of the respective Real Estate.
Note: there is a suspension of IRS on capital gains for a period of two years for the reinvestment of capital in rental properties. This suspension of this 36-month period covers sales occurring before 2020.
3 - The Tenant and Landlord Counter
The Tenant and Landlord Counter (BAS) will have the capacity for evictions and for the issue of the tenant's debt certificate to the landlord. The State will become responsible for debts due to non-payment of rents, up to three months of the due rents, in order to reinforce the credibility of the rental market and to reassure landlords in the face of default by tenants.
4 - IRS exemption on Capital Gains of Real Estate sold to the State and to Municipalities.
All properties sold to the State or to the Municipalities, in order to help combat the housing shortage, through rentals, will be exempt from the payment of capital gains by the previous owners.
5 - Incentives for the conversion of Local Housing (AL) in flats for urban rentals
All properties under a rented property regime (with a rental registration issued up until 31 December 2022), and which are available for urban rentals, will be exempt from IRS and IRC on their rents until 31 December 2029. For this they will need to have a lease contract signed until 31 December 2024.
6 - Suspension of new AL licenses
Outside of rural or low density housing areas, the issuance of new AL licences will be suspended. The control of these is attributed to the municipalities, in order to guarantee a balance between the supply of housing and student accommodation.
7 - Validity periods of AL licences
The duration of these licenses has been extended to five years and can be renewed for the same period. The government plans to review these licenses in 2030, except for properties in AL, which serve as a tangible guarantee for loan agreements made before the 16th February, 2023, and are not fully paid off by December 31st, 2029. For such cases, the reevaluation of the license will only take place after the complete repayment of the loan. Please note that AL license holders must provide proof of their license activity within two months of the new law coming into effect. Failure to do so will result in the cancellation of the license.
8- Opposition of the condominiums to AL
If the majority of apartment owners vote against the AL activity in a building of the condominium, the activity cannot be exercised, except if the building was already planned for this purpose (AL), in which case the apartment owners cannot oppose.
9 - Additional contribution for the AL
The diploma makes a remarkable impact by utilizing a coefficient that takes into account the property's area, location (considering urban pressure), and income. The minimum rate is set at 20%. When it comes to rental properties, the calculation of IMI (Property Tax) will always
consider the full patrimonial tributary value (VPT), regardless of the property's age, meaning it will be set at 1 (100%).
10 - Forced lease for vacant houses
This measure has generated a lot of controversy and confusion both nationally and internationally, also due to doubts regarding its legality vis-à-vis the right to property, consecrated in the Constitution.
Basically, the law foresees that houses that have been vacant for more than two years, in areas of high urban concentration and density, may be subject to forced lease to entities such as the municipality, which will sub-lease them later, providing the market with more homes for its population. Holiday homes or homes whose owner is absent for work or health reasons are not included.
The norm foresees that after two years in which the property is vacant or unused, the municipality will notify the owner to make use of the property. The owner will then have 90 days to respond to that notification or to put the property to use; otherwise, if the situation continues, the municipality can force the lease of the property.
11 - Increased IMI rates and municipalities that do not adhere to the forced lease regime
With the purpose of forcing municipalities to use the forced lease regime, the diploma foresees that if the municipality does not adhere to this regime, it will not be able to apply the aggravated IMI rates to vacant properties in the municipality.
12 - Tax benefits for works on houses intended for the program of accessible lease
For houses targeted for renovation and intended for the Affordable Rent Programme (PAA), the Government provides several tax incentives, including VAT, on the costs of renovation, will be 6%, IMI exemption for at least three years (in some cases for another 5 years), as well as exemption from IMT for those who acquire properties to rehabilitate and deliver to the PAA.
13 - Communication of the lease agreement to the Tax Authority (AT)
The diploma allows that the tenant may also present the lease agreement to the AT (previously only the landlord could do so). This measure intends to contribute towards the end of illegal contracts and the cases in which the landlord has not made this mandatory communication.
14 - Exemption of the payment of capital gains on the sale of property to amortize an associated mortgage credit
The Decree Law also includes a provision which grants exemption from capital gains tax on the sale of a property under the following terms: a) the property is the owner's own permanent residence or that of their descendants; b) the sale is made between 01 January
2023 and 31 December 2024; c) and the mortgage credit is amortised within three months of the sale being made.
15 - Decrease of the specific rate of IRS levied on rents
The government intends to create an incentive for investors to rent their houses, in order to increase the existing housing stock. Specifically, we have a reduction of the IRS base rate, from 28% to 25% on rents. More significant will be the reduction for long term contracts, where the rate will be reduced to 10% and even to 5%, in the case of contracts with a duration of more than twenty years.
16 - End of the Residence Permits for Investment purposes (ARI) the so-called Gold Visas
With this measure, it is simply no longer possible to grant residence visas through the acquisition of real estate or other investments. However, in view of some deficits and other legal aspects, the government altered the original basis, related to legal time limits and acquired rights of the visas already granted. New ARI applications on which a declaration has been issued by GEPAC prior to the entry into force of this law are thus admitted.
Although there are other options for visas for residence in Portugal, the great uncertainty created, namely due to the terrible way in which this matter has been communicated, has seriously damaged Portugal's previously good reputation, both nationally and internationally.
17 - Authorisation for the conversion of commercial and service spaces and buildings into residences
In order to contribute to the increase of the national residential park, is foreseen the introduction, in the legal regime of urbanism, of faster and less bureaucratic processes for the change of use of commercial buildings and services in residential. Namely, dispensing with the need to review land use plans (PDM), the process of issuing housing permits, among others.
18 - Development of new Housing Cooperatives
Still to be defined, due to its complexity, the Government wants to create a real estate development model, to create rental housing at similar levels of income as the PAA. Namely the delivery of land and buildings of the State, for housing cooperatives, for the construction or conversion of buildings for affordable rental housing will be taken into consideration.
19 - Simplex in licensing
The legislators intend to delegate the technical responsibility to the designers and establish a penalty system for public entities that fail to meet the deadlines specified by law for reviewing and providing feedback to private parties. The objective is to motivate public entities to fulfil their obligations within the prescribed timeframe.
20 - Public financing for investment in controlled cost housing (250 ME are foreseen for this instrument)
Here the Government offers a line of credit for projects that are intended for affordable housing, with the obligation to place these properties on the rental market (PAA), within a minimum term of 25 years under the PAA regime. For any subsequent acquisition of the same, the Municipality and the IHRU will always have right of preference. These measures are available to construction cooperatives, municipalities, social solidarity institutions and construction companies.
21 - Financial support to municipalities for compulsory works (150 ME planned)
The Banco Português de Fomento will create a line of financing, for Municipalities, in the amount of 150 million euros, to carry out works without the consent of the owner or person responsible for the property, under the conditions provided for in the Legal Regime of Urbanization and Building.
The “Mais Habitação” program is a Portuguese government initiative to combat the country's housing crisis and promote access to adequate housing: it aims to increase the number of available affordable homes, as well as improve the living conditions of Portuguese families.
However, because the Government did not seek political consensus, it ignored a number of opposition proposals which, in our view, could have created some more effective policies and measures.
As the “Mais Habitação” program is a comprehensive and multifaceted response to such a broad problem, seeking to improve the accessibility, quality and supply of housing, as well as to combat real estate speculation and to guarantee adequate housing conditions for all citizens, its many flaws and notoriously ineffective policies disqualify it as effective in facing this challenge.
It does not seem to us to be a programme that solves the housing problems, because once again it is driven by mere ideological and partisan action, and it is obvious that it is aimed only at the vote and not at solving the problem that Portuguese society has been facing since 25 April 1974.
Author: Paulo Lopes