Between the government passed a new housing law with no changes - what will it change?

On Friday, September 22, 2023, the Parliament passed the "More Housing" program without changes with only one PS vote after being rejected by the President of the Republic. The decree provides for several changes in rents, hotels, unoccupied properties and taxes.

The confirmation of Decree 81/XV, which approves housing measures that include various legislative changes, was secured by an absolute majority of the PS, despite protests from the opposition and various associations (business associations and civil society) related to this area.

In August, in rejecting the bill, Marcelo Rebelo de Sousa expressed his "calm negative analytical judgment" and criticized the lack of party consensus on the More Housing program, but Industry Minister Marina Gonsalves reiterated the idea that there is balance in the program, and PS said he would confirm the measures during the opening of Parliament after the summer.

The most controversial and contested measures include:

• Suspension of registration of new hotel facilities outside low-density areas
• Introduction of an additional contribution for this business
• Mandatory renting of unoccupied houses for more than two years
• Setting a cap on the value of new rental contracts for housing that is already on the market

The main measures envisaged by the More Housing program:

Limiting rent increases for new contracts

The starting rent for new contracts for dwellings that have been on the rental market for the last five years cannot exceed 2% of the previous rent. Automatic renewal factors for the last three years may be added to this amount (if they have not been applied).

Increase in the family estate tax rebate

The value of the property tax discount (IMI) that municipalities can grant to residents depending on the number of dependents is increasing. This discount is currently 20, 40 and 70 euros depending on having one, two, three or more dependents respectively.

With the entry into force of the law that describes the More Housing program, the value of the discount increases to 30, 70 and 140 euros according to the same number of dependents.

Reduced tax rate for rental income

Rental income (unless the taxpayer elects to include it in his or her income) will be taxed at a single individual income tax (IRS) rate of 25%, instead of the current 28%.

In addition, the tax rate reduction that already exists for longer term contracts will be strengthened - for the longest term exceeding 20 years, it is reduced from the current 10% to 5%, and may also be strengthened if the rent is lower than the previous rent.

However, the tax rate reduction does not apply to rental contracts entered into as of January 1, 2024, if the rent exceeds by 50% the general marginal rental rates by typology depending on the municipality where the property is located. In addition, the income tax abatement ends for contracts of two to five years.

Forced renting of unoccupied houses

It has been one of the most controversial of the More Housing measures and is aimed at unoccupied dwellings outside the hinterland for more than two years, with owners given 90 days to respond after being notified to carry out works or use the premises.

If the owner fails to respond within the specified period, the municipality may conduct a compulsory lease of the property. In addition, it is provided that the municipality may, on its own initiative or at the request of any interested party, conduct an inspection of the conditions of use of the property.

Vacation homes that are vacant because the owner is in a nursing home or provides continuing care and nursing care as an informal caregiver, as well as homes for immigrants and for people displaced for occupational, health, or educational reasons are not considered vacant for this purpose.

Unable to secure rental support or preferential interest on loans

Extraordinary support such as rental support or preferential interest on loans cannot be provided.

Exemption from value added tax (VAT) on the sale of real estate to the state or municipalities

Gains from the sale of real estate to the State or municipalities are exempt from income tax, except for gains realized by residents residing in the list of territories and countries that Portugal classifies as tax havens, or gains realized through the exercise of a prior right of acquisition. Currently, 50% of the gain must be included in the remaining income and is subject to progressive income tax rates.

Fiscal incentives for urban redevelopment are eliminated for investment funds

The income tax exemption (IRC) granted to income earned by investment funds established between 2008 and 2013 and having assets in urban redevelopment properties was repealed, and the tax exemption for persons who held interests in the investment funds was eliminated.

However, there is a provision to reduce the taxation of real estate investment funds and real estate investment societies when "at least 75% of their assets are real estate used for affordable housing."

Extraordinary contribution to the hospitality industry

The hotel industry (AL) will be required to pay a supplemental assessment (CEAL) whose tax base consists of the application of an economic multiplier (which takes into account property area and income) and an urban planning pressure. The rate applicable to this tax base is 15% and cannot be taken into account in determining taxable income under the income tax credit (IRC).

This CEAL does not apply to dwelling units that are not self-contained units, nor does it apply to ALs operating in owned and permanent housing, provided their operation does not exceed 120 days per year.

The rate, one of the most controversial measures, does not apply to domestic real estate and the initial value has dropped from 35%, originally proposed by the Government, to 15%.

In addition, the assessed value of a property for property tax purposes in a permanent residence is always 1, and these homes are no longer eligible for the reduced depreciation factor, which takes into account the age of the property.

Validity and reassessment of registration of hotel facilities

Owners of inactive AL registries must provide evidence of maintaining operations within two months of the effective date of the new law.

In case of non-compliance, the registers will be canceled by a decision of the head of the municipal council of the respective territory.

AL apartments in owned and permanent housing whose operation does not exceed 120 days per year are not subject to registration revocation. The new regulations also provide for reassessment of hotel property registries during 2030 and, beginning with the first reassessment, renewal for five years.

The only exception is hospitality properties that are real collateral for loan agreements that have not been fully repaid by December 31, 2029.

Owners may resist new hotel properties

Owners have the right to have a preliminary say on new hotel facilities that want to locate in buildings intended for housing. In addition, it is stated that “the conditions of ownership can be changed by a notarized document with the consent of all owners”.

Suspension of issuance of new hotel licenses

The issuance of new hotel registers outside inland areas (low density) will be suspended under the new rules.

This suspension, which does not apply to the operation of properties included in the Revive Natureza Fund and autonomous regions, “continues in all or part of the territory of the municipality where a state of housing shortage has been declared.”

Encouraging the transition from hotel to rental business

Owners who will exclude the apartments from the hotel business by the end of 2024 and rent them out to the public