Tag Archive for: Licensing

What are the 5 biggest threats to the residential real estate market in Portugal in 2023?

Intro

Once one of Europe’s worst performing economies and housing markets, Portugal has shown a remarkable upswing over the past 10 years and, more recently, resilience against some of the covid-related as well as post-covid challenges.

Shaken up by international and national issues many investors ask themselves if it’s now all over and the market is about to plummet as rapidly as it rose.

‘One man’s joy is another man’s sorrow’, meaning that you could also say that something that poses a threat to one investor is an opportunity for another one.

In the following we understand threats as any disruptive development that reduces the performance of the market rather than just specific groups of market participants.

We will look at arising opportunities in troubled markets in separate posts if and when the discussed threats gain traction in the market.

Political threats

Whilst not the most obvious threat to residential real estate investment markets, political factors impact all areas of life and are on of the most important framing factors.

Traditionally, but especially in the past few years leftwing parties represented the majority in parliament. One of their goals has been to improve the populations’ living conditions by increasing regulations of parts of the economy.

In 2023 the housing law package ‘mais habitação’, drawn up in March and very likely to come into effect end of October, changes significant parts of the investment environment. Some of the most severe changes regard short-term letting, Golden Visa, licensing, forced letting and rental caps.

Not only do these measures have direct impact on supply and demand as well as prices; they also shake investors’ confidence and have the potential to reduce future capital inflows and, hence, property prices. One of the major factors to attract international capital are political stability and a favourable investment environment. Therefore, short-notice and strong changes can have a strong negative reaction.

What is more, some of the planned measures have not yet been worked out all the way to the practical implementation. That means that at least for the end of 2023 and maybe beyond friction and unclarity remains around fundamental topics such as the licensing process.

Economic threats

Like most countries and asset classes, the abrupt rise in interest rates creates difficulties for many market participants. Since interest rates are decisive for investment decisions, values and the costs of financing the impact is very strong.

The consequences will only become visible with time since many occur with time lags.  

This can lead to gaps between sellers’ and buyers’ pricing expectations which may not be bridged in the short term and the transaction market get stuck with the situation (as it is already the case in most European commercial real estate markets).

However, this threat may be offset or even reversed if mortgage rates are updated (most private mortgages are not fixed) and many owners are forced to sell at the same time.

Market threats

Firstly, more and more investors remain in standby position since they expect pricing corrections as a result of interest rate changes.

Secondly, the termination of real estate investment as a path to obtain a Golden Visa removed a share of the demand from the market.

Thirdly, domestic demand is very dependent on debt conditions which have worsened significantly.

The above market threats, amongst other factors, have already contributed to a slowing dynamic in Portugal’s residential market – apartments remain longer in the market and the rise in prices has been much lower in Q2 2023 than in most quarters of the previous years.

Legal threats

Parts of the above-mentioned housing market law package ‘mais habitação’ is a change in the licencing process, which is designed to ease and speed up the licensing. However, some of the details have not been entirely defined, which means an adjustment period with some insecurity regarding responsibilities and steps may hamper the process before it becomes a routine for all stakeholders and gets more efficient. This will affect new construction and refurbishments that require a licence from the municipality.

In the medium-term to long-term it can be expected that more licences will be granted quicker, which increase supply of residential space to the market. This may put pressure on the sales prices, however, there is a fair likelihood that there will not be surplus supply.

Construction cost threats

Lack of qualified labour and strong demand for construction services have already caused costs to increase year after year before covid. With the beginning of the war in Ukraine building materials have become more expensive and drove those costs further up.

In addition, labour costs are still rising supported by high inflation in correlation with high interest rates. Further, demand for construction and refurbishment services remains strong.

The above combined with pressure on house prices can led to decreasing margins for developers and owners.

Ownership threats

Most of the above will affect owners of residential real estate more indirectly than directly. However, there are some direct threats that owners should have on their radar in 2023.

Firstly, this would be the new law contained in ‘mais habitação’ that allows for the forced leasing of permanently vacant residential units. It limits the owners’ options to use their property as planned and may bind to an unfavourable tenancy which they have to stick to.

Secondly, with 2023 bringing some summer temperature records the requirements for isolation of façades, windows, doors and roofs as well as technical parts, such as air conditioning are rising. Buildings which do not fulfil these requirements may face limited rentability and saleability in the future or respective works need to be factored in.

Conclusion

2023 is undoubtedly a year with some unusual threats to residential real estate markets in Portugal.

These include threats on the macro level, such as politics and the economic environment, but also some specific to the real estate market and its legal framework. Depending on the respective market participants construction cost threats and challenges for existing owners add to that.

It is important for aspiring investors as well as owners to keep an eye on upcoming changes and evaluate options for action and react timely where necessary.

However, some of these threats are still in their infancy and may not come through as strong as expected at all.

It should be remembered that Portugal’s, and especially Lisbon’s, residential market still benefits from limited supply and stable demand which can keep many problems away. This applies to the sales market and even more so to the rental market and, hence, which adds an additional layer of safety.

If you would like to:

  • Get assistance on potential acquisitions and arising opportunities,
  • Analyse your existing assets in regard to your risk exposure,
  • Assess the impact of the above or other threats on your planned investment or
  • Evaluate your options for action in the Portuguese real estate market

just contact Real Estate Bricks to discuss a potential service proposal or get linked to respective experts.  

In case we put you in business with 3rd-party servicers we may collect a referral fee from them.

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What can a buyer’s agent in Portugal do for me that I cannot do myself just as well?

Intro

Depending on where you are from and how active you have been in real estate purchasing you may have come across buy-side services (sometimes called acquisition services) provided by so called buy-side advisors or buyer’s agents (different terms for the same thing).

Ironically, buy-side advisory is better known and more frequently used in more transparent, and therefore less risky and more accessible, markets. This is because transparent markets are more diverse and professionalised and therefore have given rise to a wider range of services and roles.

But let’s get on it and see why how a buyer’s agents can add value to your property investment.

This post refers to buyer’s agents instructed by the buyer (you will find more details on the different roles and their typical compensation here). If you would like to learn more about the differences between real estate agents and valuers you will find a comparison here.

Areas covered by buy-side advisors

Most investment topics circle around risks and returns. You would always want to understand and evaluate those two whilst minimising risks and maximising returns.

Identify, understand, avoid or quantify risks related to:

  • Politics (e.g. law package ‘mais habitação’)
  • Economy (e.g. labour market, affordability)
  • Submarkets (e.g. up-and-coming areas or neighbourhoods in decline)
  • Building (e.g. condition, maintenance and condominiums)
  • Tenancy (e.g. potential rent, leasing options)
  • Legal (e.g. encumbrances, contracts)
  • Construction (e.g. licensing, potential refurbishment)
  • Financial (e.g. interest rates, asking price vs. value)

Tip: The above risk will have to be on every buyer’s radar. However, if you are a digital nomad intending to invest in Portugal, you might want to check out our post on risks specific to digital nomads.

Professional advisers will help to avoid common mistakes, such as:

  • Using the asking price as market value (overpay)
  • Not understanding pricing (insufficient comparison to other options)
  • Understand letting situation (gap in returns as result of wrong estimate)
  • Over-estimate potential returns (e.g. mistake rent as the return after tax and operational costs)
  • Rely on sellers or sell-side brokers advise (their interest contradicts that of the buyer)
  • Not include further advisors (hidden problems can be costly risks)
  • Buy based on personal taste (and get disappointed when selling at later point)

Services provided by buy-side advisors

General

Potential services that may be requested span anything between the first investment intention all throughout all details of the purchase to after-sales support and sometimes even implementation of the property business plan.

However, covered geographies and topics as well as competencies vary greatly between advisors.

Before the property search begins

  • Understand clients situation and goals
  • Discuss potential submarkets and property types
  • Define a client-specific investment approach and derive a search profile
  • Think outside the box to include less obvious opportunities

Identify potential properties

  • Observe market online (e.g. Idealista, Imovirtual)
  • Maintain contacts to brokers and check on upcoming sales
  • Draw from personal network to identify off-market opportunities
  • Quick checks, calls and viewings as appropriate

Analyse investment opportunities

  • Collect and apply relevant research and informal information
  • Be aware of market developments and anticipate what happens before it is visible
  • Apply personal experience
  • Evaluate and compare investment opportunities qualitatively and quantitatively
  • Benchmark by comparing research data, market rents and costs data with the property in focus
  • Work out a property specific business plan
  • Prepare financial analysis (and-or BOV, a brokers opinion of value, or valuation model) pricing in any risks as well as future costs and returns
  • Understand value as-is and prepare potential scenario analyses, e.g. for the impact of the law package ‘mais habitação’ in regards to short-term letting, taxes and rental caps
  • Fill knowledge gaps the client may have and act as sparring partner where necessary

Manage the purchase process

  • Negotiate with the seller or their broker together or on behalf of the client
  • Act as single point of contact and monitor timing and quality of input from all advisors:
    • Lawyers
    • Tax consultants
    • Technical specialists
    • Architects and construction companies
    • Environmental engineers
    • Property appraisers
    • Mortgage brokers
    • Property managers
  • Deal with public institutions
  • Foresee problems in the transaction or with the property early on and avoid surprises
  • Make tender(s) to engage advisors
  • Organise translation of documents and contracts
  • Communicate and push and save the client time where possible
  • Bridge cultural differences and balance characters to minimise friction losses
  • Communicate with leasing agents to understand potential future tenancy options

Support post-purchase steps

  • Set up first steps with servicers, e.g.
    • Property manager
    • Leasing agents
    • Accountant
    • Architect
    • Contractor
  • Observe market to advise on potential exit timing and-or sell on client’s behalf later
  • Provide access to local network

Conclusion and next steps for you as an investor

A good buyside advisor will act as your local contact during search, transaction and, ideally, during implementation of the investment strategy. Also, they will tell you when there is a good opportunity for an advantageous exit.

However, not all advisors offer all the above services. Many may have more narrow scopes or have outstanding expertise in particular geographies, investment cases or services. Take time to analyse service proposals and understand different specialisations. Contact Real Estate Bricks to go this step with you and make a proposal or connect you to relevant advisors.

You will often find designated buy-side advisors, brokers who specialise in sales or purchases and in some cases valuers focusing on a narrow but very important part of the transaction. Reading here about the differences between agents and valuers is a good start. Would you like to explore what the above services would cost you? Find more information on brokers’ fees and compensation of real estate professionals in this post.

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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

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: No capital gains tax when house sale proceedings are used to pay off mortgage

What does it entail?

When the sudden and stark increase of interest rates led to a respective increase of mortgage rates (often variable in Portugal) many households faces financial trouble. This measure intends to ease this and support the premature apartment sale for repayment purposes.

This measure applies to the sale of housing that is owner-occupied and the proceedings are used to pay off the subject mortgage or that of descendants. 

What does it mean for you as an investor?

This measure will almost solely affect owner-occupiers and those who use the sales proceedings to pay of descendants’ mortgages. 

From an investors perspective this may lead to occasional sale-and-leaseback opportunities. Someone selling out of financial pressure may be more likely to stay as a tenant. The buyer might benefit through better pricing (since the seller saves capital gains tax) as well as a stable tenant (already home there and financially better equipped thanks to the sale). 

Measure: All banks have to offer fixed rates on home mortgages

What does it entail?

Most of the mortgages taken out in Portugal are fixed-rate mortgages. Hence, the monthly rates depend on the Euribor (usually 12-month) plus individual spread and have risen significantly recently.

What has not posed a problem and usually was cheaper during the periods of low interest rates has now led to many households unable to pay their mortgage rates. With many annual rate adjustments taking place at the year-end this will even be more of a problem soon. 

As opposed to before, when banks could decide whether they offer fixed-rate product in addition to the variable ones, this is now an obligation. 

What does it mean for you as an investor?

For you as investor changes are limited, since fixed-rate mortgages have been around for a while. It can be expected that you might be able to find a better offer or negotiate because overall there are more choices. 

In any case, offers need to be compared. This should not only include the key points of a potential mortgage, but you should also include the fine print. 

On a different, yet related note, it is often worth to check on the small print of mortgages already taken out to see the conditions of early repayments. These can help to switch to more favourable contracts or renegotiate upon a possible termination respectively. 

Measure: State will subsidise interest rate payments for households in need

What does it entail?

This is one more measure, which was designed to ease the burden that arose for many households from the sudden and strong increase of interest rates and, consequently, mortgage rates. 

Applicable to households, who have a social support index (IAS) of 1.5 (equal to ca. 720 Euros) and a mortgage of up to 200.000 Euros, this makes a 50% subsidy on the interest payment possible. 

What does it mean for you as an investor?

This measure will only have impact on those households which meet the above criteria. 

Therefore, there is unlikely to be any impact on investors, except that this will reduce the amount of foreclosure properties coming to the market in the future.

A note on key interest rates and mortgage subsidies

Most private mortgages taken out in Portugal are based on variable rates rather than fixed rates. This means that when the Euribor changes the debtors interest rate will change (usually annual adjustment) by the same percentage. The individual spread which is added to the Euribor rate remains the same. 

Also, bear in mind that Portugal’s real estate market is in an earlier stage of development than that of most western countries. This usually translates into high a high share of owner-occupation, which also means that for many it may be easier to sell and buy an apartment than finding a rental. 

In addition, the rental market is less regulated, which means that for many renters there would be a higher risk of being unable to afford their rents as they age. Owning the house you live in is seen as a protection against unaffordable rents and securing your own retirement. 

The private rental market (PRS) or Buy-to-let segment has taken off in Portugal rather recently and developed mostly in high-density urban areas, such as Lisbon. With the increasing professionalisation of the market this can be expected to continue to change. 

As a reader coming from a country with more orientation towards free market economy, the states support of mortgages may appear surprising. Buying houses is often seen as the preferred option for middle- or higher-income households whereas at the lower end renting is the obvious choice. Due to the above-mentioned factors, in Portugal, the regulation and subsidisation of mortgages to safeguard housing is just as relevant as the measures in the rental market. 

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

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

Further reading on the topic in English

This post (parts 1 to 3) is vaguely based on various Portuguese and English articles by Idelista.pt. Idealista provides information about a wide range of real estate topics. 

Good reads on the topic are: 

Link: Idealista

Link: The Guardian

Link: CNN

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

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

  • Golden Visa will not be granted for real estate investment anymore
  • Further restrictions on use of residential units as AirBnB and other short-term rental
  • Simplification of the licensing process
  • Increase residential space through easing conversion of commercial space
  • 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

  • Rent for new contracts is limited to 2% above the last rent
  • Change of taxation of rents
  • State will act as contract party in rental agreement whilst providing the space to low-income individuals
  • State will rent residential units in the free market to sublease them at lower rent to low-income households
  • State will subsidise rents for households in need
  • 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

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

Measure: Rent for new contracts is limited to 2% above the last rent

What does it entail?

Residential units which have been subject to a rental agreement within the past 10 years can not have a new rent more than 2% above the last one or the rent increase that could have been exercised during the last lease term. If there were rent update coefficients unapplied over up to three years, these can be added.

What does it mean for you as an investor?

Whereas property investments are usually a good protection against inflation, this is now a bit less so. In addition, there is an increased likelihood that this measure will be applied more often or even permanently in the future. 

Ironically, this measure bears the potential to affect the provision of housing negatively in the long-term. As it reduces the attraction of buy-to-let investments, it reduces the construction and refurbishment of apartments for this purpose and the overall availability of housing. 

Whereas investors will see their income from lettings increase slower due to this measure, the potential extension of it may increase negative long-term pressure on supply and, hence, support property values (stable or increased demand meeting stable or decreased supply).

Measure: Change of taxation of rents

What does it entail?

Hoping to encourage that owners put houses on the market, which have previously not been for let, the tax on rental income (IRS) was reduced to:

  • 25% for contracts wit a term <5 years
  • 15% for contracts with a term of 5 to 10 years
  • 10% for contracts with a term of 10 to 20 years
  • 5% for contracts with a term of >20 years

What does it mean for you as an investor?

It needs to be seen how much of an incentive this measure will be. 

On one hand the amount of vacant apartments is significant. 

On the other hand, these are not the vacancies that would be eliminated by a small percentage of tax savings.

An investor should go through their real estate portfolio and planned acquisitions to understand the impact of this measure. It will often turn out to be small relevance, but when seen in combination with the entire housing package may impact a decision here and there. 

Also, make sure you always have a good and up to date tax advisor.

Measure: State will act as contract party in rental agreement whilst providing the space to low-income individuals

What does it entail?

A core aim of the housing package is to ease access to housing for households with low or no income and those with a high rent to earnings ratio respectively. 

This measure will allow that the state can act as for the tenant in case the latter defaults and there is a reason that should be mitigated through public funds. If pursued this measure would apply after three months of defaulting and a respective filing of an eviction request. 

What does it mean for you as an investor?

This will only affect a landlord in case of a tenant in default. In the worst case the state does not exercise the right to enter the process, so a landlord would just proceed with the eviction as initiated. In the best case a tenant who has been unable to pay can stay, the eviction (and future costs) become unnecessary and your contract party is the most reliable you can possibly have (the state). 

Measure: State will rent residential units in the free market to sublease them at lower rent to low-income households

What does it entail?

In a similar way in which some municipalities (e.g. Lisbon) already rent apartments in the private market to provide them to families as affordable housing, the state set up a similar scheme. 

Rent will be directly paid from the state to the landlord, so there is no risk of tenant default and the tenants rent burden can be kept below or at 35% of the household income. As of now, the maximum period for this support is limited to 5 years duration.

Further, the measure includes the possibility for the state to purchase housing units for the same purpose and exempts those transactions from capital gains tax (IRS). This is applicable to sales to municipalities as well. 

What does it mean for you as an investor?

This measure may be relevant to you when: 

  • You are going to rent out an apartment which would suit the requirements of the scheme. You would receive a rental party much safer than any individual.
  • You are going to sell and the apartment would fit the requirements. With this measure the state or the municipality become possible buyers and you might be able to safe on capital gains tax (IRS). 

Measure: State will subsidise rents for households in need

What does it entail?

Applicable to households which spend more than 35% of their income in rent for contracts dating 21st December 2022 or before and, at the same time, are in a certain tax bracket, the state will monthly subsidy of up to 200 Euros.

What does it mean for you as an investor?

This will have a rather marginal effect on investors who have tenants who qualify for the above, because it simply eases of facilitates the tenants’ rent payments. 

Measure: State reduces or exempts from various tax positions when a unit is let at affordable rent

What does it entail?

Basically, this measure aims at:

  • Reducing the tax burden for landlords hoping that they lower their asking rents to the extent that they become affordable.
  • Reducing the tax burden for landlords hoping it makes it financially more viable to construct or refurbish for affordable housing

Both of the above will be done through reducing property transfer tax (IMT), income tax (IRS) and municipal property tax (IMI) and value added tax (VAT) for construction and refurbishment works. 

Further, this measure includes that:

  • Municipalities may fund refurbishments of units which are currently marketable and allocate them to affordable housing.
  • Public authorities can force the owner to lease a unit which is proven top be unlet and unoccupied. 

What does it mean for you as an investor?

This will depend on the costs and income structure of the residential units you own or plan to acquire. 

To benefit from the tax deductions (some of which are applied temporarily) the amount you save in total would have to be less than the difference between the market rent and the affordable rent. Research the respective parameters or consult your real estate consultant and tax advisor to find out whether that would be the case. 

However, forced refurbishment and renting will appear as a threat to many owners. If you own a vacant unit and are not running any efforts to bring it to the market in some way, it is time to act. Otherwise, you run risk that the state takes this decision from you. 

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

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

  • Golden Visa will not be granted for real estate investment anymore
  • Further restrictions on use of residential units as AirBnB and other short-term rental
  • Simplification of the licensing process
  • Increase residential space through easing conversion of commercial space
  • 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 3 of 3: measures with most impact on mortgages and a note on key interest rates and mortgage subsidies

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