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Portuguese Government Creates Lifetime Housing Contracts

14 February 2019

The new measure is called the Effective Right to Long-Lasting Housing (DHD) and was approved Thursday by the Council of Ministers. The goal of the measure is to provide tenants with added stability and homeowners with lower levels of risk.

The Portuguese government approved the creation of a new housing policy, which gives families the right to occupy a particular dwelling for their lifetime. The new measure is called the Effective Right to Long-Lasting Housing (DHD) and was approved Thursday by the Council of Ministers, which also approved a decree defining the terms of the affordable rents program.

The purpose of the measure, as described by the Portuguese government in a statement, is “to provide families with the possibility of stable housing, allowing them to maintain a permanent residence in particular dwelling for their lifetimes, by giving the property owner a security deposit and a monthly payment for the life of the housing contract.”

In other words, the residents of the property will pay its owner, upon signing a rental contract, a deposit representing a fixed percentage of the property’s value, which according to the Minister of Environment and Energy Transition, João Pedro Matos Fernandes, will be range from 10% to 20%. At the same time, the tenants will pay monthly instalments, equivalent to rent, and can live in that home for the duration of their lifetime.

The statement added that, though they have the right to occupy the property during their entire lifetime, any tenants that enter into this type of agreement are not required to and may back out of the housing contract. The policy’s advantage, the government stated, is that this type of contract would lead to “lower levels of indebtedness compared to the alternative to buying one’s own home.” At the same time, the tenant may “contract a loan for the deposit to finance the security deposit,” the statement said, without specifying further details. The tenant may also be entitled to receive the security deposit back, depending on the total amount of time spent living in the home.

The homeowner, for their part, would be able to “increase their capital without having to sell the asset,” as well as gain access to “a stable level of profitability and a reduction in management costs,” lowering the “risk of a default by the tenant on their obligations, through the tenant’s security deposit.”

New rules for affordable rents

The Council of Ministers also approved a decree creating the Affordable Rents Program, which Parliament had already approved. The program aims to help families whose income falls below the minimum required to access housing on the free market by setting maximum rental costs, a maximal tenant effort rate of 35% and a minimum lease term of five years.

To join the program, property owners will have to offer monthly rents that are 20% below the average for their region. There will also be a maximum rent, which the government stipulated in the decree but has yet announce.

In addition to the decree, the Portuguese government approved another that creates the special lease insurance framework within the scope of the Affordable Rents Program.

The measure created three types of insurance, which property owners and tenants accessing the program would have to contract: one against a possible involuntary loss of income (for the tenant), one against a possible failure to pay rent and another to cover possible damages (for property owners).

IMI on vacant properties increased

The government also approved a decree increasing the municipal property tax (IMI) rate on vacant buildings in areas deemed to be suffering from housing pressure. The municipalities will, therefore, be permitted to increase the IMI rate, which had already been increased for vacant properties when they are in areas considered to be under pressure and have been vacant for at least two years.

Urban pressure zones are considered to be “areas where there is a significant difficulty in accessing housing, either due to scarce housing supply or a condition whereby rents are too high for the general population. The municipalities would define the areas using objective indicators related, for example, to existing housing prices, incomes and the existence of housing shortages.”

Original Story: Economia Online – Rafaela Burd Relvas

Translation: Richard Turner