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New Housing Initiatives: An Overview of Approved Measures

Updated: Nov 20, 2023

The President, Marcelo Rebelo de Sousa, said no to the More Housing program's rules. But on September 21, these rules got a thumbs up from Parliament. Only the Socialist Party voted in favor.

Portugal housing

Despite the lack of agreement and doubts about how well these measures will work from other political parties, several steps are being taken to minimize the housing crisis impact in Portugal.


These measures affect a wide range of people, including those with housing loans, renters, landlords, and local accommodation providers, and there will be some restrictions on local accommodation and golden visas. Additionally, more tax benefits are being introduced, covering a larger group of individuals than originally intended.


In this article, you'll find a summary of the More Housing program measures.


WHAT MORE HOUSING MEASURES WILL AFFECT RENTALS?


The More Housing program includes several measures to alleviate the impact of rising rents and prevent eviction situations for tenants.

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Here are some examples of these measures

  1. Limiting Rent Increases in New Leases: When setting the initial rent for a house that has been rented in the last five years, the rent cannot increase by more than 2% compared to the previous contract. In some cases, automatic update coefficients from the previous three years can be added, but only if they haven't been applied. This means that a maximum of 5.43% can be considered for 2023. However, rents lower than the affordable lease rate are exempt from the 2% limit.

  2. Protection of Income Support: Extraordinary income and subsidized interest support, which has been in effect, provide a monthly allowance with a maximum ceiling of 200 euros for tenants with an effort rate of more than 35%. This support cannot be seized as collateral and is expected to last for the next five years.

  3. Rent Adjustment for Pre-1990 Leases: Older leases that have not transitioned to the New Urban Lease Regime (NRAU) will not move to this regime. Instead, these rents will be updated according to inflation. Landlords with such lease agreements will benefit from exemptions in IRS and IMI (municipal property tax), and compensation is also anticipated.

  4. Payment of Overdue Rents: The State may pay overdue rent if the default is more than 3 months. This support will be evaluated, and it's not granted to all tenants. If the non-compliance is due to financial hardship, Social Security will manage the situation. The maximum monthly ceiling for this support is 1.5 times the national minimum wage (1,140 euros), with a total limit of 9 times the national minimum wage (6,840 euros). The State may also collect outstanding amounts through standard debt collection practices.

  5. Tenant Reporting of Leases: If your landlord hasn't reported your lease or changes to the Tax and Customs Authority, as a tenant, you can make this declaration. The specific deadlines and terms for this process will be regulated by the Ministry of Finance.

These measures aim to provide relief for tenants in various rental situations.


NEW RENTAL MEASURES FOR LANDLORDS

  1. Reduced IRS Rate: Landlords who choose not to include their rental income will see a decrease in the IRS rate from 28% to 25%, resulting in a 3% reduction.

  2. Longer-Term Contracts: For rental contracts exceeding 20 years, the IRS rate drops from 10% to 5%. This rate reduction may apply if the rental income decreases compared to the previous amount. Note that this measure doesn't apply to contracts initiated after January 1, 2024, if the rent exceeds 50% of the general rent price limits based on property typology and location. Contracts lasting between two and five years are also excluded from this reduction.

  3. Capital Gains Exemption: When selling property to the State or a municipality, capital gains related to the sale are exempt from IRS. This exemption does not apply if you reside in a tax haven or if the sale is conducted through the right of preference.

  4. Forced Lease of Vacant Houses: The forced lease of vacant houses located outside the country's interior continues. It applies when owners do not make improvements or use the property within 90 days of notification. After this period, the Government can proceed with the forced lease or inspect the property's condition. Holiday homes and those owned by emigrants, displaced workers, individuals displaced for health and training reasons, and informal caregivers providing permanent care in another dwelling are exempt from this measure.

  5. Subletting Vacant Houses: A new measure allows private individuals to lease vacant houses for subsequent subletting. Landlords can benefit from tax incentives on rents if the rent price aligns with the conditions of the Accessible Rental Support Program and the contract lasts five years or longer.

  6. Affordable Lease Support Program: To increase the number of houses in this program, the government aims to lower VAT to 6% for construction and rehabilitation works on program-integrated houses. This includes a three-year IMI exemption, with the possibility of an extension for another five years, and IMT exemption for acquisition for rehabilitation.

  7. Tenant and Landlord's Desk (BAS): This service streamlines eviction proceedings and expense requirements. The BAS handles eviction requests and notifies tenants, who then have 15 days to oppose or request deferral of eviction based on legal procedures. This new law introduces several changes to non-compliance with rents and eviction processes, so it's advisable to seek clarification at this counter for any doubts.

These measures provide added protection and incentives for landlords in various rental scenarios.


MORE HOUSING BENEFITS FOR HOUSING CREDIT HOLDERS

  1. Housing Credit Interest Moratoriums: If you have a variable or mixed-rate housing loan (in the variable rate period) and rising interest rates are affecting your budget due to increasing Euribor rates, you have the option to fix your installment at a lower amount for two years. The difference in payment will only be applied four years after this period ends. This essentially provides a credit moratorium, delaying the payment of a portion of interest to a later date. This measure applies to loans with terms equal to or greater than 5 years, contracts concluded until March 15, 2023, and those renegotiated or transferred.

  2. Increased Interest Subsidy: The calculation for the interest subsidy has been revamped. It now applies to the difference between the applied index value and 3%. The subsidy value has increased from 720.65 to 800 euros. The bonus percentage no longer depends on income brackets but varies based on the effort rate. A 75% bonus applies when the effort rate is between 35% and 49%, and a 100% bonus applies when the effort rate is equal to or greater than 50%. This measure is valid for those with housing credits for acquisition, construction, or works in their own permanent housing, with a variable or mixed rate (in the variable rate period), initial debt capital equal to or less than 250 thousand euros, an effort rate of at least 35%, and not exceeding the 6th step of the IRS in the last taxable period. It is applicable to credits concluded until March 15, 2023.


  1. Extended Exemption from Early Repayment Commission: To facilitate partial or total amortization of variable or mixed-rate housing credits (in the variable rate period), the exemption from the early repayment commission has been extended until the end of 2024. Originally, this exemption was planned to last until the end of 2023. This extension allows credit holders to benefit from the exemption from the payment of 0.5% of the amortized amount for an additional year.

  2. Capital Gains Exemption: If you sell your property to pay off a housing loan for your own permanent home, whether owned by you or your descendants, you may be exempt from paying capital gains. This applies to property sales between January 1, 2022, and December 31, 2024.

These measures offer additional support and benefits to housing credit holders.


CHANGES TO LOCAL ACCOMMODATION WITH MORE HOUSING


The More Housing measures significantly impact local accommodation to improve housing access. Here's what's changing:

  1. CEAL Payment: The introduction of the CEAL (Extraordinary Contribution to Local Accommodation) payment. It involves applying an economic coefficient to the taxable base, which considers income, property area, and urban pressure. The base rate is 15%, and it's not deductible from corporate income tax (IRC). Exceptions include non-autonomous properties, those without independent usability, and own permanent housing. However, the latter can't be rented for more than 120 days a year. Properties in interior regions are also exempt from CEAL.

  2. Proof of Activity Maintenance: Inactive Local Accommodation records must provide proof of ongoing activity. Failure to provide this proof within two months of the new legislation's enactment will result in registration cancellation. Permanent dwellings with less than 120 days of exploitation are exempt.

  3. Local Accommodation Records Review: Local accommodation records will undergo reviews in 2030, with subsequent renewals only for five years.

  4. Suspension of New Licenses: In areas with a declared "housing shortage," new local accommodation registrations will be suspended, excluding the interior regions and properties integrated into the Revive Natureza Fund.

  5. IRS or IRC Exemption for Lease Conversion: Property owners who change from local accommodation to rental agreements by the end of 2024 will be exempt from IRS or IRC on rents until the end of 2029, without rent amount restrictions. This applies only to properties with Local Accommodation registration until December 31, 2022.

  6. Condominium Owner's Consent: Condominium owners can now oppose new local accommodations in residential buildings. The horizontal property's constitutive title can be modified through public deed with the unanimous consent of all condominium owners.

  7. Gold Visa Changes: New applications for residence visas related to investment activities won't be accepted. However, this doesn't affect visa renewals or residence permits for family reunification.

REMOVAL OF IRC EXEMPTION FOR URBAN REHABILITATION INVESTMENT FUNDS


The Government has ended the IRC exemption granted to income earned by investment funds formed between 2008 and 2013 with assets in real estate subject to urban rehabilitation. Additionally, the tax benefit for investment fund unit holders has been revoked.

Although this may be unwelcome news for investors, it's expected that there will be a reduction in taxation for real estate investment funds or real estate investment companies, as long as at least 75% of their assets are allocated to properties intended for affordable rent.

CREDIT LINES


Among the More Housing measures, two credit lines have been introduced:

  1. Mutual Guarantee and Interest Rate Subsidy Credit Line: This 250 million euros credit line supports affordable housing projects, including construction, rehabilitation, and property acquisitions for rental purposes. Properties funded under this line must be designated for affordable rent for a minimum of 25 years.

  2. Municipal Coercive Works Credit Line: This 150 million euros credit line, provided through Banco Português de Fomento, assists municipalities in conducting coercive works in line with the Legal Regime of Urbanization and Building.

If you have any questions or need professional advice regarding the More Housing Program, feel free to contact us at INLIS Consulting Contabilidade. We're here to assist you and your company. See you soon!

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