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80% of the Offer of Local Accommodations in Lisbon May Lapse With Sale of Property
27 October 2018
An expansion of the containment areas under consideration by Medina’s city council will oblige most property owners to hold onto their properties for life to avoid a loss in value.
Owners who want to maintain their property as local accommodations in the containment zones set by the Lisbon city council may have to hold on to the property for the rest of their lives since once the asset is sold or leased its commercial value drops to zero. According to the new law that came into force this week, local tourist accommodation registrations automatically expire in case of a change in ownership. In other words, the owners may sell the property as a real estate asset but not as a business based on local accommodations. The person acquiring the property would have to apply for a new license, which the local authority may not grant in Lisbon’s areas of containment.
Essentially forcing the owner to hold onto the business for life “is a major restriction, and one that is especially critical for buyers who acquired and renovated properties specifically for use in the local tourist accommodation market, “says Eduardo Miranda, the president of the Portuguese Association of Local Accommodations (ALEP). “If the owner needs to sell their property due to some difficulty in life, everything they have accomplished to increase the value of the property is lost.”
The law’s restrictions do not stop there, existing registrations also expire when a company owns them, and the firm sells more than 50% of its equity. “Imagine what this can mean in a divorce or a fight between partners,” the president of ALEP warned. “The only exception they included… was in the event of the owner’s death. Otherwise, [the law] is completely absurd.”
The issue is becoming even more critical given that the Lisbon city council, the first of its kind to impose containment zones for local accommodations, announced that it is considering extending the restrictions to other areas of the capital. In addition to Alfama, Mouraria, Castelo, Bairro Alto and Madragoa, the council is evaluating the imposition of limits on Graça, Colina de Santana, Ajuda, Lapa and Estrela, along with Avenida da Liberdade, Avenida da República and Avenida Almirante Reis. “If they all become zones of containment, they will cover more than 80% of the currently registered local accommodations in Lisbon,” says Eduardo Miranda.
Containment “does not solve the housing problem.”
According to the law, the city council can immediately suspend new registrations of local tourist accommodations in areas where it plans to create new contention zones. The suspension can last up to one year.
“The suspensive measure is the most extreme and can cause significant panic in the market if it is not well managed by the city council,” the president of ALEP warned, noting that “the suspension covers everything, even construction. The biggest effect will be on any renovations that are underway, and the people who will be the most penalised are the owners who strictly followed the rules since construction permits can last for nine or ten months.”
ALEP approved of the mayor of Lisbon speaking this week about “the issues affecting local accommodations and the containment areas, though it was not clear what areas would be suspended, and the impact here can be immense.”
The association also approved of the monitoring of indices tracking neighbourhoods that are most or less affecting by the local housing market, permitting “a healthier and more balanced relationship” between inhabitants and tourists. “But we are talking about issues affecting five or six parishes, when there are 1,800 in the country,” Mr Miranda stressed. “We were always against immediate suspensions; it was preferable to start with regulations whose rules were understood by all.”
The executive also warned that “the only objective here is to encourage housing,” while the restrictions generated by the suspensions “will not solve the problem of housing at all… it is an illusion, and local tourist accommodations have become a scapegoat. When you stop local accommodations you then get Erasmus students or foreigners who are moving here; there are any number of investments today that are more attractive than renting for €100 or €200.
According to Eduardo Miranda, the “housing problem is structural and needs aggressive measures to encourage traditional long-term rentals, with tax benefits being the most effective way forward.”
The association still believes that local housing has room to grow, there is room for growth of local housing, especially considering the stock of available real estate. “Lisbon has 50,000 vacant properties, in addition to 35,000 second homes, which means 85,000 properties that are not used for permanent housing, while there are 16,000 local accommodations,” the official noted.
“Local accommodations are not just a fad, they have come to stay, and people who fail to understand this are out of touch with reality,” Miranda concluded. “We are talking about a fundamental part of [Portugal’s] tourism market, one which already accounts for a third of overnight stays and 70% in the interior. It’s not about low cost, because some of the most expensive places to stay in the country are local accommodations.”
Growing
78,739 – the number of local accommodations registered since 2014. Last year, the number of registrations stood at 54,349, an increase of 44.8%.
214 – the number of small parishes in the interior of the country where at least one local tourist accommodation has been registered since the beginning of this year.
1,200 – the number of new registrations in Lisbon between October 11 and last Saturday, because of the new law. Most were made by residents in the containment areas.
IRS – Personal income tax
Hidden Benefit
The president of ALEP, Eduardo Miranda, believes that suspending the registration of new local accommodations will not solve the housing problem in Lisbon. A solution would require tax incentives and more information for investors. Mr Miranda stated that the government altered a tax benefit for owners who place their property on the long-term rental market in the 2018 State Budget, but that is little used since its existence is largely unknown. The benefit reduces IRS payments to just 5% on any rents received in cases where the owner invest more than 25% of the original property price in renovations. Once the renovation is confirmed by the local authority, the owner would receive the benefit. Before the change, the local authority would have had to check the property twice, once before and once after the construction. “The value of assets in historic centres is very low, so renovations worth €10,000 to €15,000 are often enough to receive the benefit,” he concluded.
Original Story: Jornal Expresso – Conceição Antunes / Ana Baptista
Photo: Inês Duque
Translation: Richard Turner