🏠 ⚖️ Real estate market and proposed legislation on habitation in Portugal

I. 📈 Current trends in the property market:

At the global level

• US luxury real estate market at a standstill.

• Russian customers have shifted to the Emirates for real estate.

• Period of general mistrust with banks tightening credit.

• Real estate investment market slowing down and shifting to immediate consumption (tourism and restaurant sectors growing).

On the French market

• In the first quarter of 2023, there was a 30% decrease in property purchases in France.

• The real estate industry in France has alerted the French government to this situation with the following figures:

  • 100,000 jobs threatened (according to a study by Saint Gobain and Nexity)

  • 500,000 housing units are behind schedule.

In Portugal

• The housing crisis is visible. The Socialist Government of Antonio Costa's bill "Mais Habitação" (more housing) aims to address this crisis by modifying the legislation on construction and housing. See part II. of the article for more details.

• Demand has been far greater than the supply of property for about 10 years. This has led to a surge in property prices. Property prices have increased by 22% in less than 2 years post-pandemic. Despite inflation and rising interest rates, there is still no impact on prices. Prices are not falling and fewer transactions are taking place.

• Between the advertised prices of the properties and the prices actually signed at the time of the sale (at the CPCV (promise of sale contract) and the Escritura (final deed of sale)), there is a downward difference of about 8%.

• The only drop in property prices is for investment funds. Those who suffer: the owners selling commercial property.

• Beware, there is no such thing as a fixed rate in Portugal! The country suffered the full force of the 2008 economic crisis and a property crisis in 2014. But for the past 18 months, rates have only increased (while prices have not yet fallen). In recent times, some Portuguese have seen their monthly payments increase by 30 or 40%. These variable monthly payments are of course having a severe impact on the daily lives of Portuguese households.

• There is no usury rate in Portugal. It is possible to take out a loan for a maximum period of 40 years, provided that the maximum age of the borrowers at the end of the loan is less than or equal to 80 years. In France, since 1 January 2022, banks may no longer grant property loans exceeding a term of 25 years.

• Portugal remains attractive to Americans, who have notably taken advantage of the conditions offered by the Golden Visa (GV). The GV programme - which the Portuguese Government wishes to abolish with the entry into force of the "Mais Habitação" bill (see continuation of this post) - currently gives non-European investors the right to reside, work and study in Portugal in exchange for an investment of at least 280,000 euros. The GV allows for permanent residence or citizenship after 5 years. The Algarve and Porto are in the top 10 of destinations considered the most luxurious by Americans (alongside Dubai, Miami and the Bahamas). The latest celebrities to have acquired property in Portugal are George Clooney and Sharon Stone.

• Portugal is still tapping into the niche of non-residents who continue to buy property.

II. ⚖️ Draft Law “Mais Habitação” (more housing):

• 30 March 2023: the Council of Ministers announces a draft of the "Mais Habitação" programme measures. Please note that no measures will come into force before the vote in Parliament and the promulgation by the President of the Republic.

• 19 May 2023 from 10:00: discussion and vote in the plenary session of the Assembleia da República (Portuguese Parliament) of the draft law "Mais Habitação".

To date, the ambitions of the draft Law cover the following themes:

• Rental/lease contracts:

  • Rent limitation for new residential rental contracts: the value of the last rent fixed on the same property in a previous contract by applying the coefficient of 1.02 i.e. the initial rent of the new contracts cannot exceed 2% of the rent.

  • Possibility of forced lease for vacant properties: proof of non-occupation of a property attested for example by the lack of contracts in force with telecommunication companies, absence of invoicing of water, gas, electricity consumption, but also the cumulative existence of low water and electricity consumption. Risk of forced rental of empty properties for more than 2 years. The value of the rent could then not exceed 30% of the general rent ceilings according to the commune where the property is located.

• Short-term tourist rental (AL for Alojamento Local):

  • Suspension of new AL licences: no new licences can be obtained after the entry into force of the draft law. Exception: the interior of the country, Madeira and the Azores.

  • Reassessment of licences already issued: licences issued at the time of entry into force of the law will be reassessed in 2030. Exception: for goods purchased before 16.02.2023 with a credit and not fully depreciated by 31.12.2029, then the revaluation will only take place after full depreciation of the credit.

  • Renewal every 5 years of other AL licences

  • Impossible to acquire a licence by transfer.

  • Expiry of the licence in case of transfer of part of the share capital of the company holding the register.

  • Possible opposition of owners to the exercise of AL activity in horizontally owned buildings with syndicates. The assembly of co-owners can oppose the LA by obtaining: more than half of the thousandths, that the constitutive title is opposed to it and that there is not an official record authorising it.

  • Creation of an annual extraordinary tax on AL property: taxable base based on 2 coefficients published annually and a tax of 20%. Exceptions include AL property in the inland territories and Madeira and the Azores.

  • Tax benefit for the transfer of a AL property into a long-term rental: possibility, under conditions, of exemption from IRS and IRC on property income from rental contracts for residential purposes.

• Limiting the IMT exemption to purchase for resale: the time limit for resale would be reduced from 3 years to 1 year. No transitional provisions in the bill. Great impact for investors making purchases for resale.

• End of the Golden Visa (GV) scheme: The Government seems determined to end the GV (which covers non-EU foreign investors). New GV applications would no longer be accepted when the legislation comes into force.

• Creation of a "balcão de arrendamento" which provides a mechanism for the State to guarantee payment of unpaid rent to the landlord.

• Promote the simplification of town planning procedures at town halls (draft law 77/XV/1 simplex urbanism): abolition of licences in certain cases, tacit approval for building permits, deduction and suspension of deadlines, withdrawal of simplified building permits (replaced by proof of payment of fees due), simplification of the process of reclassification of land.

- N.B.: The elements of this post are a synthesis of the information presented by the speakers during the webinars organised by :

• French Radio, "Real estate, towards a historic crash?" (15/05/2023).

• CCILF (Luso-French Chamber of Commerce and Industry), "Foreign investors and the real estate sector faced with the measures announced by the Portuguese government" (18/05/2023) .