Governments housing package ‘mais habitação’ part 1 of 3: measures with most impact on Golden Visa, short-term rental and licensing

Various governments of European have begun to tackle the issue of housing availability and affordability in the past years and the Portuguese left is no exception. 

What started as a half-baked draft of measures (known as mais habitação) based on rather limited research to solve a problem has now become reality affecting owner-occupiers, investors and tenants alike. 

Implemented with only the best intentions there remains a risk that the measures only ease the symptoms whilst delaying real solutions and even potentially hindering higher availability of housing. 

Read in three parts what the 14 measures entail and how they affect the market and maybe your investment: 

Governments housing package ‘mais habitação’ part 1 of 3: measures with most impact on Golden Visa, short-term rental and licensing

1. Golden Visa will not be granted for real estate investment anymore
2. Further restrictions on use of residential units as AirBnB and other short-term rental
3. Simplification of the licensing process
4. Increase residential space through easing conversion of commercial space
5. The state will make some of the land it owns, and is not used, available for the development of affordable housing

Governments housing package ‘mais habitação’ part 2 of 3: measures with most impact on the rental market

1. Rent for new contracts is limited to 2% above the last rent
2. Change of taxation of rents
3. State will act as contract party in rental agreement whilst providing the space to low-income individuals
4. State will rent residential units in the free market to sublease them at lower rent to low-income households
5. State will subsidise rents for households in need
6. State reduces or exempts from various tax positions when a unit is let at affordable rent

Governments housing package ‘mais habitação’ part 3 of 3: measures with most impact on mortgages and a note on key interest rates and mortgage subsidies

1. No capital gains tax when house sale proceedings are used to pay off mortgage
2. All banks have to offer fixed rates on home mortgages
3. State will subsidise interest rate payments for households in need
4. A note on key interest rates and mortgage subsidies
5. Further reading on the topic in English

Measure: Golden Visa will not be granted for real estate investment anymore

What does it entail?

Granting a Visa to non-EU nationals based on the purchase of real estate had already been limited in the past regarding qualifying geographies and has now been entirely terminated.

Of all the measures of this housing package this has probably been the most challenged one as it removes some 600m of annual contribution to the economy. In addition, many market participants, including university researchers, argued that the impact would be rather small and Golden Visa purchases are often made in segments of the market (higher priced or developments tailored to Golden Visa) that would not have catered to domestic buyers anyway.

However, the Portuguese government followed a longstanding recommendation of the EU, since the day that the programme was important for the country’s economic recovery are over. 

What does it mean for you as an investor?

If you are a non-EU national and have not permanent visa yet, this means that you have one less option to obtain one. However, bear in mind that the Golden Visa programme still exists for investments in companies and that Portugal offers other Visa types, including for digital nomads. 

This measure hit many property developers by surprise and the implementation date of it was even set to just before the first announcement. This means that hundreds of apartments in developments tailored to foreign buyers (often more expensive and of higher standard) remained in the market and there are more to come. If your investment strategy entails high quality apartments, you might be able to find good supply at better prices than usual. Keep in mind that asking prices often do not change, but your negotiation margin does. If you are not used to negotiating, consider instructing a real estate expert to get you the best possible deal.

Measure: Further restrictions on use of residential units as AirBnB and other short-term rental

What does it entail?

Increase in licences short-term rentals has helped the real estate market to improve when it was badly performing increase the many years ago. 

Meanwhile, as the downsides of so-called over-tourism become more evident in many European cities including Lisbon, the government seeks to stabilise or reverse this development to release pressure from the housing market.

This measure entails that:

• New licences will only be granted in rural locations and the countryside. 
• Tax incentives (zero personal income tax until 2030) will be allowed to those owners who transform short-term rentals to long-term rentals by the end of 2024.
• An annual special contribution will be collected from owners of short-term rentals.
• Future reviews of existing licences will take place in 2030 and every 5 years after. This means it will be decided whether the cap on the number of licenses will be kept, increased or reduced.

What does it mean for you as an investor?

If you are already running local accommodation this measure of the housing package will have significant impact as per the above and, indirectly, you should have on your radar:

• The risk that you may not be able to extend your licence beyond 2030.
• The risk that taking a tax incentive in exchange for giving up the licence will heavily impact the income from a unit as well as its potential sales price. 
• The risk that, in case local accommodation will be restricted upon review in the future, you may find yourself selling at the same time as many others or maybe during a market downturn.

Measure: Simplification of the licensing process

What does it entail?

The process of obtaining licenses for construction and larger refurbishments has been perceived as very slow and complicated. This issue is a major cause for concern when timing construction and budget. What is more, the problem appears to be more severe in Lisbon, where prices haven risen the fastest and supply is needed the most.

In the future ease is expected to come from:

• Firstly, responsibility for the legal viability of a project is shifted from the municipality to the planner (often the architect), which is supposed to speed up the process.
• Secondly, whereas municipalities would usually not have to fear damages for missing their deadlines to respond, this will now be penalised by applying a late interest payment. 

What does it mean for you as an investor?

It depends. 

On one hand investors who are active in the area of property development of refurbishments might benefit from more reliable schedules and budgets in the future. 

On the other hand this measure has the potential for the real estate market to react faster and better to demand. Whereas for the economy and tenants this is good, a less restricted supply side may lead to weakening sales and rental prices in some submarkets.

However, it needs to be seen how this will be applied in practise. Architects have raised a range of unclarities about the process and liability risks.

Measure: Increase residential space through easing conversion of commercial space

What does it entail?

It means that land and buildings which have a license for commercial use will not require a changed permit from the municipality.

What does it mean for you as an investor?

Generally, this is a good idea as it increases the potential space which can be made available to the residential market through apartment sales or leasing. 

It also provides property investors with more options to react to market demand and, hence, serve the strong demand for residential space.

In practice, it needs to be seen how this pans out, because:

• Firstly, owners who have planned a construction or refurbishment of a commercial building have usually done so based on the returns offered in the commercial real estate market. Only where it is financially viable or advantageous they will consider to convert to residential use. 
• Secondly, commercial and residential buildings have very different specifications. Changing the planning entirely may pose a problem to some owners and changed specifications may cause another loop in obtaining licensing regardless of the measure.

Impact on private and small professional investors will be limited. However, there will be more options for conversion of, especially retail or office space, to residential space. Since residential sales and rental prices in prime locations are often higher, it can make sense to look for well-priced commercial units that can be converted to realise the upside potential. 

Measure: The state will make some of the land it owns, and is not used, available for the development of affordable housing

What does it entail?

Public entities ranging from the municipality level up the state level own buildings and land plots in all kinds of locations throughout the country. Sometimes, these serve as space reserve for potential future needs (public schools, offices for administration, military facilities etc.). 

However, across the country these amount to approx. 100.000 units or buildings, so that it can be assumed that many have just not been dealt in an efficient manner yet and remained unused for no reason whatsoever. 

Some of these will now be allocated to affordable housing through public tenders. This also set an example for some of Portugal’s municipalities who started similar individual schemes. 

What does it mean for you as an investor?Since this will be applied to only a subsection of the market (affordable housing) and the numbers of new units are rather low (in the hundreds so far), the impact on your personal investment strategy is likely neglectable. 

Read more on the housing package in the other two parts of this post: 

Governments housing package ‘mais habitação’ part 2 of 3: measures with most impact on the rental market

1. Rent for new contracts is limited to 2% above the last rent
2. Change of taxation of rents
3. State will act as contract party in rental agreement whilst providing the space to low-income individuals
4. State will rent residential units in the free market to sublease them at lower rent to low-income households
5. State will subsidise rents for households in need
6. State reduces or exempts from various tax positions when a unit is let at affordable rent

Governments housing package ‘mais habitação’ part 3 of 3: measures with most impact on mortgages and a note on key interest rates and mortgage subsidies

1. No capital gains tax when house sale proceedings are used to pay off mortgage
2. All banks have to offer fixed rates on home mortgages
3. State will subsidise interest rate payments for households in need
4. A note on key interest rates and mortgage subsidies
5. Further reading on the topic in English