The rise of vacation rentals threatens the tourism industry

The president of the Alojamento Local em Portugal (ALEP) association warns of the "disruptive" nature of changes to vacation rentals and says the biggest impact will be felt in the Algarve.

The property owners of Alojamento Local (AL) are battling the government's proposed changes to short-term rental legislation affecting apartments in cities and the most populated areas, which they say could have a serious impact on the tourism industry. While the changes still had to be voted on in Parliament on Wednesday (July 19), they are likely to be approved given the majority of the PS government - after which the changes will still have to be promulgated by the President of the Republic.

"The likelihood that these changes will be approved (in parliament) is huge, so people are already preparing for these changes, which will have a huge short-term impact and ultimately cause great harm to the industry," Eduardo Miranda, chairman of the association Alojamento Local em Portugal (ALEP), told Resident magazine.

The changes are part of the government's counter-version of the Mais Habitação (More Housing) program and are presented as a way of "freeing up" more homes to combat the country's housing crisis. However, AL property owners emphasize that this is far from the truth.

"It's not going to affect the housing crisis. The majority of AL real estate will continue to be used as short-term rental housing. What is happening is the destruction of the sector without getting anything in return. And that's what we tried to warn people about," Eduardo Miranda told Resident magazine.

He warned that the measures were "not well thought out" and do not take into account the "reality of the country" because the AL regime is one of the main drivers of Portugal's thriving real estate market.

"The real estate sector will feel a huge impact because AL (short-term vacation rentals) has been one of the main reasons for buying apartments. In other words, people will lose one of the most important reasons for buying real estate," he said.

ALEP

ALEP also fears this "attack" on the sector will lead property owners back into an "unregulated rental market".

"These changes turn back the clock on 15 years of progress because the government is making it impossible for owners to rent their properties legally. We know there has always been a demand for these recreational facilities, and AL has been able to legally attract it to the market, creating jobs and paying taxes along the way. Now we are taking a huge step backwards," he explained.

Eduardo Miranda also believes that the country's reputation will suffer from these changes. As he explained, "when laws are constantly changing and the rules of the game are changing in the middle," investors will start to "question" whether Portugal is the right place to invest.

"Portugal and especially the Algarve is probably one of the most successful stories in Europe, managing to turn a seasonal activity into a legitimate business. But these changes will be a huge relief for the industry," he complained.

What changes are planned?

New AL licenses will not be issued until December 31, 2030 for apartments or accommodations such as hostels in buildings. Portuguese autonomous regions, 165 "low-density municipalities" and 73 "low-density parochia" are excluded. Townhouses and detached villas are not included in the proposed AL changes. Ultimately, however, municipal councils will have the final say over the issuance of new AL licenses - they can be suspended if a "housing shortage" is declared by the municipality and while the declaration is in effect.

Each municipality will also have to create its own Municipal Housing Charter, finding a "balance" between housing, short-term rentals, student housing, commerce, industry and other activities.

AL properties that are not in use could lose their license if the owner fails to file an income tax return within two months of the law taking effect. A license may also be revoked upon transfer of ownership of real property, except in cases of inheritance, where the license may be transferred to the new owner. All current licenses remain valid.

AL registrations issued prior to the effective date of the new rules will not expire until December 31, 2030. After that, they would have to be reviewed and could be extended for five years. The decision to extend will be at the discretion of the municipalities.

The creation of a Special Contribution for Local Placement (CEAL) is envisaged. This tax, which was originally announced at 35% and then 20%, will now be 15% and will only apply to apartments. The tax rate will vary depending on the square footage of the property, income from the property, changes in rental prices and urban planning pressures in the neighborhood where the property is located. CEAL will not apply to Local Accommodation properties located in low density neighborhoods.

Condominiums will have the right to revoke AL licenses issued for apartments. More than half of the building's ppm must oppose the license for it to be revoked.

Al property owners considering moving their properties into the long-term rental market will benefit from an income tax (IRS) and income tax (IRC) exemption on rental income through December 31, 2029.

Changes in short-term rental legislation spark protests in Porto

Dozens of Alojamento Local (AL) property owners demonstrated in Porto last Saturday (July 15) against measures taken by the government to further regulate the short-term vacation rental sector. Their main complaint is that the government has given condominiums the right to liquidate their businesses. From the owners' point of view, this would entail risks to tourism and seriously undermine their own business activities.

D Square. João has become the site of a dramatic call for rethinking. The 304 bags, each representing 200 families, were filled with words in different languages related to tourism and complaints from the AL sector.

One of the participating owners, Ana Sofia Rego, told the Lusa agency, "We protest against the measures that will lead to the cessation of our work. During the recession from 2008 to 2011, I was out of work. I gathered everything I had, with the support of my parents and my husband's in-laws, and renovated a small apartment that had been empty for over 20 years in the center of Porto, thus creating my own workspace. Each of these 304 work bags symbolizes families who, like me, depend on their small local housing business to help finance their lives. "