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More Housing: what kind of package is this anyway? (part 1 of 2)

Writer's picture: Marco Moura MarquesMarco Moura Marques

Since the first time - February 16, 2023 - when several measures from the “More Housing” program were made public, it has generated immense discussions and controversies… Hence, many are asking themselves: what package is this after all?



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On July 19, 2023, the Portuguese Parliament approved a package of measures as part of a Program presented by the Government, which was called “More Housing”, which has the announced objective of creating “more housing”, as its name indicates.


Bill 71/XV/1 approves measures within the scope of the “More Housing” intervention plan, having been submitted to Parliament on April 14, 2023. Bill 77/XV/1 authorizes the Government to carry out the reform and simplification of licensing within the scope of urban planning and land use, having been submitted to Parliament on May 2, 2023.


On the 21st of August, the President of the Republic took the decision to enact Bill 77/XV/1 and to veto Bill 71/XV/1, sending it back to Parliament.


Regarding the Bill vetoed by the PR, it is to be expected some strong argumentation and contestant coming from the various political quarters (after all, the Bill was approved only by the Socialist Party, which holds the parliamentary majority), but also from various quarters of civil society. We'll see what happens in the near future...


But because these measures have already had and still have an impact on society and the economy, due to the expectations created since the presentation of the proposed measures in the Council of Ministers, five months ago, I share here a brief summary of what is proposed in each Bill:



BILL 71/XV/1


  • Objective: secure more housing

  • Through the following major lines of action:

    • Creation of support for the promotion of affordable rental housing;

    • Development of a new generation of cooperatives to promote affordable housing;

    • Definition of exceptional and transitional rules regarding the value of rents in new lease contracts, subsequent to contracts signed in the last five years;

    • Definition of protection mechanisms for tenants with lease contracts prior to 1990 and the guarantee of fair compensation from the landlord;

    • Simplifying and improving the functioning of the special eviction procedure and rental injunction and strengthening the guarantee for tenants and landlords;

    • Approval of various fiscal measures to encourage and support leasing;

    • Incentive to transfer apartments from Local Accommodation to housing rentals;

    • Creation of an extraordinary contribution on apartments and accommodation establishments integrated into an autonomous fraction of a Local Accommodation building;

    • Revocation of residence permits for real estate investment activity;

    • Expansion of the scope of exemptions from prior inspection by the Court of Auditors ("Tribunal de Contas").



PROMOTION OF AFFORDABLE HOUSING


  • Beneficiaries

    • Housing cooperatives or other commercial companies dedicated to the construction of housing at controlled costs.

    • Municipalities, parish councils, mercy offices, private institutions of social solidarity and legal entities of public administrative utility or recognized public interest that, alone or in partnership with the entities referred to in the previous point.


  • Extension of the scheme to student accommodation


  • Modalities

    • Financing line

      • with mutual guarantee and interest rate subsidy;

      • construction or rehabilitation (including acquisition of property for this purpose and subsequent rental) of projects in the area of affordable housing.

    • Transfer of land and public buildings

      • by granting the surface right for a maximum period of 90 years, renewable for the same purpose, by agreement between the parties;

      • the surface right is transferable, as long as the duty to allocate the dwellings to the promotion of housing for affordable rental is safeguarded.


  • Tax benefits

    • VAT rate of 6% for construction or rehabilitation contracts for properties mostly allocated (at least 70%) to the Rental Support Program (PAA)

    • IMT exemption on acquisition or purchase for rehabilitation or construction if, after rehabilitation or construction, it affects the PAA

      • in case of signing a lease contract under the PAA, within a maximum period of 6 months from the date of transfer, or maintaining the property's destination for 5 years from the date of transfer:

        • in the acquisition of land intended for the construction of housing linked to the Affordable Lease Program (PAA);

        • in the acquisition, rehabilitation or construction of urban buildings or autonomous units for allocation to the PAA.

    • IMT exemption for a period of 3 years after acquisition or rehabilitation if affected by PAA, and may be renewed for another 5 years

      • in case of signing a lease contract within the scope of the PAA, within a maximum period of 6 months from the date of transfer, or maintaining the property's destination for 5 years from the date of transfer - on urban buildings or autonomous fractions allocated to the PAA for a period of 3 years, starting from the year of acquisition (renewal for 5 years, not automatic)

    • AIMI exemption, as long as they are included in the PAA

    • Stamp Tax exemption on residential rental contracts for properties intended for Affordable Rental

    • Incentives for affordable housing rental

      • Capital gains resulting from the sale of participation units in real estate investment funds and real estate investment companies in which at least 75% of their assets are real estate used for affordable housing rental are taxed at a rate of 10% when the holders are non-resident entities to which the exemption provided for in article 27 of the EBF does not apply, or are IRS taxpayers resident in Portuguese territory who obtain income outside the scope of a commercial, industrial or agricultural activity and do not opt for the respective inclusion.

      • IRS and IRC exemption on property income obtained within the scope of municipal programs offering affordable housing rental and student accommodation.



LEASE



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  • Limitations on increasing the value of rent in new contracts

    • The value of the initial rent for new lease contracts, if the property in question has been rented in the last five years, cannot exceed 2% in relation to the value of the last contracted rent.

    • Exceptions:

      • The 2% limitation does not apply to rental contracts whose initial rent value is lower than the maximum rent value for each municipality, as defined in the affordable rental programs (“Porta 65 Jovem”, “Programa de Apoio ao Arrendamento” ).

      • If the immediately previous lease contract has not been subject to one or more legally permitted updates, the update resulting from the update coefficients from the previous three years may be added, considering the coefficient of 5.43% for 2023.

      • If the property is subject to extensive renovation or restoration work (certificate from the City Council is required), the amount relating to expenses borne by the landlord may be added to the initial rent, up to an annual limit of 15%.


  • Non-transition to the New Urban Lease Regime ("NRAU") of lease contracts prior to 1990

    • Contracts prior to 1990 that have not yet been transferred to the NRAU definitively no longer have this possibility.

    • There will be compensation measures for landlords (IRS exemption, IMI exemption, amounts and limits of compensation, definition of the value of rent, etc.), to be applied from 2024 (but still need to be confirmed, after issuing a report to issue by "Planapp" and by "IHRU").


  • Reduction of the special IRS rate on rental income

    • Taxpayers who earn income from rent (landlords) and who do not choose to include this type of income will benefit from the following rate reductions:

      • From 28% to 25%, in lease contracts with a term equal to or greater than 2 years and less than 5 years.

      • From 23% to 15%, in lease contracts with a term equal to or greater than 5 years and less than 10 years.

        • reduction of 2 p.p. on each contract renewal, up to a limit of 10%

      • From 14% to 10%, in lease contracts with a term equal to or greater than 10 years and less than 20 years.

      • From 10% to 5%, in lease contracts with a term equal to or greater than 20 years.

    • The IRS rate reduction does not apply to lease contracts signed from January 1, 2024, where the rental value exceeds by 50% the maximum limits on the rental value by type depending on the municipality where the property is located, such as defined in the “affordable rental” programs ("Porta 65 Jovem" and "Programa de Arrendamento Acessível").


  • Compensation to landlords for limitations on rent increases

    • Application of a fixed coefficient of 0.90 to their property income subject to progressive IRS rates and/or the autonomous rate of 25%.

    • Application of a variable coefficient from 0.45 to 0.90 to their property income subject to reduced IRS rates (from 5% to 26%).


  • Communication of contracts by tenants (tenants) and sub-tenants

    • Tenants and sub-tenants have the option of communicating lease and sub-lease agreements to the Tax Authority.


  • Forced lease

    • Autonomous housing units, as well as parts of an urban building capable of being used independently of housing use, may be subject to forced leasing, provided that:

      • located outside the interior territories and the Autonomous Regions; and

      • classified as vacant for more than 2 years (according to Decree Law 159/2006).

    • Two optional procedures:

      • If the municipality intends to lease the property:

        • If the property requires works, the municipality can notify the owner of the conservation obligation, and can also promote the execution of works in case of non-compliance.

        • If the property does not require work, the municipality may notify the owner of the obligation to use the fraction, and may also present a rental proposal to the owner.

        • The property will be subject to forced leasing, if the owner refuses the proposal and does not respond within 90 days and the property remains vacant.

      • If the municipality does not intend to lease the property:

        • If the property requires works, the municipality can notify the owner of the conservation obligation, and can also promote the execution of works in case of non-compliance.

        • If the property does not require work, the municipality can send the information to the Housing and Urban Rehabilitation Institute (IHRU), and the latter can present a rental proposal to the owner.

        • The property will be subject to forced leasing, if the owner refuses the proposal and does not respond within 90 days and the property remains vacant.

    • The value of rents - in forced rental situations - cannot exceed by 30% the general rental price limits by type depending on the municipality where the property is located (according to paragraph a) of no. 1 of article 10 of the Decree Law 68/2019)

    • If municipalities do without forced leasing, they cannot apply the increased IMI rates provided for vacant properties.


  • Communication of service consumption contracts

    • For the purposes of controlling the use given to properties, entities distributing water, energy and fixed telecommunications must communicate service consumption contracts with end customers to the Tax and Customs Authority.

    • The communication to be made must include the tax identification of the end customer and the indication of the urban building's matrix article, as well as an updated list of the absence of consumption or low consumption, for each urban building or autonomous fraction.

    • Evidence of vacancy will be considered (according to Decree Law 159/2006):

      • The lack of contracts in force with telecommunications and water, gas and electricity supply companies;

      • The lack of billing for water, gas, electricity and telecommunications consumption;

      • The cumulative existence of low consumption of water and electricity, considering as such consumption whose relative billing does not exceed, each year, consumption greater than 7 m3, for water, and 35 kWh, for electricity;

      • The unoccupied situation of the property, attested by an inspection carried out under article 90 of DL 555/99, in its current wording.


  • Guarantee of payment by the State to the landlord of uncollected rent

    • The State will replace the tenant and pay rent in cases where there is non-compliance for more than 3 months, to reinforce guarantees in the rental market.

    • It will be up to the State to assess the tenant's situation, and may proceed to collect the outstanding amounts, using the means currently existing for the collection of other debts.



LOCAL ACCOMMODATION



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  • Suspension of new registrations

    • The issuance of new local establishment registrations in the types of apartments and accommodation establishments integrated into an autonomous fraction is suspended.

      • Exception: interior territories and Autonomous Regions.

    • Municipalities can define in their Municipal Housing Charters the balance between the supply of housing and student accommodation, allowing the end of the suspension of new licenses, unless the Municipalities have declared a situation of housing shortage.


  • Reassessment of registrations already issued

    • The registrations issued on the date of entry into force of the Proposed Law will be subject to review in 2030.

    • In the case of establishments that constitute a real guarantee of loan contracts concluded until 02/16/2023, which are not settled until 12/31/2029, the review will only take place after full amortization.

    • Renewal period: 5 years.


  • Non-transferability and Expiration

    • The registration number of the local accommodation establishment is personal and non-transferable, even if I grant ownership to a legal person.

    • The registration expires in the event of the transfer of any part of the share capital of the legal person holding the registration, regardless of the percentage. This expiry is only removed in cases of succession.

    • Within 2 months from the date of entry into force of the Proposed Law, the owners of the establishment are obliged to provide proof of maintaining the exploration activity, under penalty of cancellation of the respective regimes.


  • Opposition to the exercise of Local Accommodation activity

    • If the AL activity is carried out in an autonomous fraction of a building or part of an urban building capable of independent use, the General Assembly of Condominium may oppose the exercise of that activity, provided that: (i) it decides for more than half of the permillage; (ii) the constitutive title does not expressly provide for such use nor is there an express resolution of the Assembly authorizing such use.


  • Extraordinary Contribution

    • The Extraordinary Contribution on Local Accommodation (CEAL) is levied on apartments (autonomous units and parts or divisions of urban buildings capable of independent use of a residential nature) allocated to local accommodation, on December 31st of each year.

    • CEAL is owed by the holders of operations of establishments in AL and, alternatively, by owners of properties that are not holders of operations.

    • The following are excluded from CEAL:

      • Properties located in the interior of the country and in the Autonomous Regions;

      • Properties located in parishes that meet the following criteria:

        • are covered by a current Municipal Housing Charter that demonstrates an adequate balance of housing and student accommodation in the municipality;

        • include municipalities in which housing shortages have not been declared;

        • do not have any part of their territory as an urban pressure zone.

      • Residential properties that do not constitute autonomous units, nor parts or divisions capable of independent use and local accommodation units in their own permanent housing, as long as the operation does not exceed 120 days per year.

    • The applicable CEAL rate is 15%, the tax base being that resulting from the application of the following coefficients (to be published annually in Ordinance):

      • economic coefficient of local accommodation; and

      • coefficient of urban pressure to the private gross area of residential properties.

    • CEAL is settled and paid by the taxpayer, by the 20th and 25th of June, respectively, of the year following the tax event.

    • CEAL is not deductible for purposes of taxable income under IRC, even when accounted for as an expense in the tax period.


  • Tax incentives for the transfer of real estate from AL to Lease

    • Property income resulting from the transfer of properties allocated to AL for rental for permanent housing is exempt from IRS or IRC taxation, and provided that:

      • the transferred properties have registration and allocation of the operation of local accommodation establishment by the end of 2022;

      • sign the lease for permanent housing, with the respective registration on the Finance Portal, by the end of 2024.


  • Coefficient of aging in Local Accommodation

    • The aging coefficient of buildings that constitute, totally or partially, AL establishments, is always 1, impacting (increasingly) the VPT of these properties.



This ends the first part of this article. In the second part I will address the measures that affect Purchase for Resale, Golden Visas, Real Estate Capital Gains, IMI and some additional Tax Benefits. And I will list the main measures of Bill 75/XV/1, which aims to simplify urban licensing processes.


You can read here < ...................................................... > the second part of this article.



Necessita de esclarecimentos adicionais?

Não hesite em contactar-me:


Marco Moura Marques

+351 967 035 966

marcomouramarques@kwportugal.pt




Sources: Idealista, Público, Antas da Cunha ECIJA e Cuatrecasas

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