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Supply of Homes to Rent Set to Fall By 20%

12 January 2019

Property owners in Lisbon are forecasting a reduction in the supply of rental properties in 2019, together with a concomitant increase in prices, following new measures recently approved in Parliament. According to tenants, the pace of evictions is already accelerating.

Property owners and tenant groups are forecasting higher rents and a tighter supply of homes in 2019 following the approval of a package of measures targeting the housing sector by Parliament in December.

“The situation will worsen as a result of these measures, and we will revisit the problems we had in the 1970s and 1980s, when rental contracts almost disappeared,” says Luís Menezes Leitão, president of the Lisbon Association of Property Owners, predicting a reduction of 20% in the supply of rental properties due to the new restrictions, following a similar drop last year. “There will be further increases in rents, and the housing crisis will worsen.”

Tenant groups still believe it is too early to adequately assess the impact of the new measures, which as of yet lack regulatory implementation. “We will see how it will turn out, but we are not very optimistic,” says António Machado, the secretary general of the Lisbon Tenants’ Association. “What will occur is that families continue to seek to buy their home rather than rent one.”

Landlords decline to renew rental contracts to avoid “unending contracts.”

One of the measures that landlords are strenuously against concerns cases where contracts become indefinite if the tenant is over 65 years of age and have resided on the premises for more than 15 years. The measure has led property owners to quickly rescind such contracts or to think twice before renting homes to people in their 60s.

“Landlords will be forced into ‘unending contracts’ if they allow tenants to reach this age and stay in the building. It is already leading to the cancellation of many such [rental] contracts,” said the president of the Lisbon Association of Property Owners.

The tenants’ association confirmed the trend. “That is precisely what is happening, as soon as they can, landlords refuse to renew existing contracts using whatever reason. They are essentially evictions,” says António Machado, lamenting that “lawmakers have been wrapped up with 30 or 40 decrees… if we want to have a rental market, we have to go further.”

Property owners’ fears are compounded by the mandatory three-year renewal for new contracts, along with a number of other restrictions. “It’s very harmful because it brings more insecurity. No one will want to sign contracts with these terms, and people who do will ask for more money,” says Luís Menezes Leitão. Mr Leitão only supports one new measure, a tax reduction for the renewal of long-term contracts starting in 2019. “But it is just a drop in the bucket since the largest reductions are for 10-year contracts, which barely exist now and are unlikely to in the future.”

With regard to the measures encouraging the placement of properties in the affordable rental market, the Lisbon Association of Property Owners stated that they are “useless, since rents must be 20% below the median market price, which is itself 10% below the average, which means that the person would lose 30%, and the income tax exemption, whose rate is 28%, isn’t enough to compensate.” “In addition to having their income fixed, the property owner has to pay for three different types of insurance and will then likely lose money. Worse, landlords are unable to choose their tenants, which are chosen by the state.”

The market lacks suitable homes for the Portuguese

The National Association of Property Owners (ANP) sees the reduction in taxes on long-term rental contracts as positive but does not believe that the measures sufficiently address the current difficulties in the market.

“In Portugal, taxes on real estate are overly burdensome. The government must realise that it must create a tax system that encourages people in the middle class to invest in rental homes, together with reforms,” João Caiado Guerreiro, president of the ANP, emphasises.

At a time when the market is at a turning point, especially in Lisbon and Porto, with increased demand by foreigners, who are willing to pay higher price for high-quality homes, the new measures are seen by the real estate companies as a “first sign that something is being done,” as taxes on long-term rental contracts fall.

“The problem in the market is that there is a supply shortage, there are too few homes on the market, and the stock that is coming onto the market is not aimed at the Portuguese,” says Luís Lima, president of the Portuguese Association of Realtors and Real Estate Agents (APEMIP). “What we really need, is an increase in supply of homes for the Portuguese, to buy or to rent, and the solution is not to block foreigners.” The new measures are “a remedy that may take some time to take effect since the problems are already fairly extensive.”

Original Story: Jornal Expresso – Conceição Antunes

Translation: Richard Turner