Are Alojamento Licenses and short-term rentals going down the drain?

Is this the end of short term rentals and Alojamento Local?

As many of you may have already heard, the Portuguese government has recently brought in a new bill with the intention of intervening in the current tourist rental market. The purpose of this is « Mais Habitacao » or more housing, and curbing the issuance of short term rental (AL) licences is part of this proposal.

Portugal’s major cities and popular vacation destinations along the coast have an acute shortage of affordable rental and owner-occupied housing for the Portuguese people. The political party PS, which has a large majority in parliament, wants to change that with measures that may have a profound effect on the attractiveness of the short-term rental market. We obviously understand that our (future) homeowners will have questions about this and how it will affect them.

Comprehensive information on the AL license plans

Robert M.L. Snapper, a real estate specialist with years of experience in the Algarve, has prepared a comprehensive report on the current state of the Portuguese housing market, the possible changes that are coming and whether or not they will contribute, or not, to the intended goal – to create more living space. This summary is full of interesting information, both for owners who want to rent out their property, and for people who have settled in Portugal on a long-term basis or who want to do so. Follow this link, to read the entire report on his website. Below we summarise the points we consider to be of most importance for our (future) property owners in Portugal and other rental partners.

How certain is all of this regarding the AL license stop?

Upfront, we want to make it clear that nothing is officially known yet about what will or will not change in the rental and housing market. Since the new bills came out, there has been much protest from both the opposition government and, of course, from the rental market.

We will only have the official decision about this on March 16th. Until then we can only wait and see and direct those owners who are already in the process of an AL application to chase this up, in case an immediate halt to issuance is indeed announced on that date.

Skewed housing market due to foreign investors
There is no denying that something needs to be done about the skew in the Portuguese housing market. The current minimum wage is 705 euros per month, but in the most popular Portuguese cities and coastal towns you can easily pay 1500 euros per month for a 2-bedroom house. The average owner-occupied house costs 400,000 euros and even for a ‘simple’ apartment you are looking at around 200,000 euros.

The blame is almost always placed on foreign investors. Recently Portugal has done a lot to attract these investors but with the new bill, many of those attractions suddenly become a lot less enticing. The proposed ideas include increasing the (presently low) tax rate on short-term rentals to 28%, possibly restricting the issuance of AL licences (possibly only in urbanised areas) and stopping the issuance of ‘Golden Visas’. The bill also proposes that ‘Non Habitual Residency’ (which allows foreigners to invest in Portugal but apply the lower tax rate of their home country) will no longer be possible or attractive for many nationalities.

In addition, the rise in mortgage rates (due to the increased Euribor) obviously affects the return on a rental property. In Rob’s article you can find an example of how much influence that Euribor has on the repayment of a mortgage.

On the other hand, massively reducing the income tax rate for income from long-term rentals should make it more attractive for owners to offer their property in that market.

What does this really mean for foreign homeowner in Portugal?

It is up to the government to try to find a middle ground that both addresses the major housing problem but does not completely collapse the tourist market. This is because although the Portuguese are being driven out of the housing market by foreigners, in tourist areas such as the Algarve, some two-thirds of residents also earn their income from those same foreigners.

It also remains to be seen whether curbing AL issuance and raising taxes really does contribute to the solution for the « ordinary » Portuguese people. As Robert Snapper argues at the end of his report; the homes bought by foreign investors are almost always at the higher end of the market.

Encouraged by the outcry of protest from the foreign investors in Portugal, there will of course be attempts to change the current bill by the opposition party. A very interesting question is whether the possible stop to the issuance of the AL will only take place in certain areas and as of when. Also what will the consequences be for owners who already hold an AL licence. As far as we can tell right now, it will remain valid for the time being.

Of course, we are following developments closely, and will share any information we deem important. It goes without saying that after March 16 we will map out what will really change in our market for our owners as soon as possible.