VAT at 6% a good start say developers

Real estate developers in Portugal have welcomed the government’s decision to finally, after years of lobbying, to reduce value added tax on new build for affordable rent.

Over the past 10 years, developers, both overseas and national, have complained that the rising cost of building materials, the cost of qualified manpower (there is a glaring lack of well-qualified construction workers in Portugal) and high taxation had made it almost impossible for them to build cost-effective housing and turn a profit.
But now that the government has given way to the industry over reducing VAT from 23% to 6%, developers say that while the move is welcome, it still isn’t enough.
The main real estate developers do say that they are now prepared to enter the build-for-affordable rent market, but point out that they also need tax and legislative stability.
In other words, they want assurances that governments when they change at elections or make policy changes, won’t chop and change rental legislation which is prejudicial to landlords and over protective of tenants in terms of tenancy contracts; neither do they want fluctuations in tax regimes because of the time it takes for developers to develop a construction strategy from outline plans on the drawing board to final completion of construction for rent.
José Cardoso Botelho, CEO of Vanguard Properties (pictured), said that the reduction in VAT to 6% on new build for affordable rent is “good news”, but stressed “more is needed”.
“We have experience and an interest in this type of construction. Indeed, over 90% of projects from Vanguard’s shareholder in Switzerland targets the middle class market,” he told online news source ECO.
The head of VIC Properties, which is behind the Prata Riverside project at Lisbon’s Braço de Prata, Luís Gamboa, also said the company was toying with the idea of the build-to-rent market, although they’ve no concrete plans for Portugal for the moment.
“It’s not a market we would ever ignore and the VIC Properties group operates in other countries,” said the company’s COO.
As to the rents themselves on new housing, these have to be in line with the government’s Accessible Rents Programme, but José Carlos Botelho is skeptical. “In the short term it is difficult for us to engage in this type of project because the cost of prime materials remain so unstable which makes it hard to plan and carry out viability studies”.
It’s an opinion shared by Mexto (a Swiss developer and real estate investment company) CEO Miguel Matias Cabrita. “Incentives are always needed because today construction costs are so high and this makes it unviable to do any (middle class) projects without cost controls”.