It’s all over for Portugal’s Golden Visa after 12 years and €6Bn as Housing Package announced

It’s official. Portugal’s successful Golden Visa programme, which has netted the government over €6Bn since 2012, is to end in a bid to put a stop to property speculation which the government and critics say is partly responsible for driving up house prices in parts of Portugal.

The government confirmed its decision on Thursday afternoon after a meeting of the Council of Ministers when a raft of housing measures were unveiled caused an avalanche of criticism from both left and right wing parties in the Portuguese parliament, and from Portugal’s property development association the APPII. 

The government introduced proposals for a 16-measure €900 million housing package aimed at alleviating some of the problems caused by Portugal’s chronic housing shortage. The proposals will go forward for public consultation for a month and will be voted for in parliament on 16 March.

Apart from scrapping the Golden Visa scheme, the other proposals include: 

• An increase in the number of homes on the rental market with the State renting out available properties owned by private landlords at market prices for a period of five years if they can be sublet. The subletting would correspond to 35% of the tenant’s monthly effort rate – the effort rate is an indicator that measures the weight of financial expenses against the total disposable income of the household . In other words, with this ratio what is intended to be determined is: what is the financial “slack” that the credit applicant has to face new debt –  with families and persons who are more vulnerable being eligible, such as young people, one-parent families, and families with falling incomes. To allay the fears of landlords that rents might not be paid by the tenants, the government will introduce a change so that all eviction notices that come to the attention of the National Accommodation Office – if the rent is in arrears for three months – the State will step in and pay the landlord the outstanding sums of money. 
• Parcels of land and trade and services properties may be used for housing without the need to have change of use licences or changes to territorial spacial development plans. The Government will also launch two competitions for modular construction which is considered ‘innovative’ in the construction sector and are shown to shorten building times and significantly reduce energy costs at both production and lifecycle by improving energy efficiency.
• There will be a limit on how much rents on new rental contracts can be increased. For new contracts the new rent should be based on the sum of the last rent charge with the updates that could have been charged within the period of the contract. For existing contracts, the State will provide a lifebuoy of up to €200 a month for five years to families with incomes up to the 6th taxable scale of IRS when the effort rate is over 35%.
• The extension of the scope of Porta 65 – a rental support programme which helps young people up to the age of 35. This will now be expanded to include single parent families who have suffered a fall in income.
• Taxes on income from building rents will come down to 25% — when the landlord does not choose to aggregate income from rents — falling from 28%. This will also imply lower IRS taxes on long-term contracts: between 5-10 years (from 23% to 15%), between 10-20 years (from 14% to 10%), and over 20 years (from 10% to 5%.
• Exemption on capital gains tax on properties sold to the State or municipal councils. With the aim of increasing rental housing offer, the Government is proposing that landlords who sell properties to the State or to municipal councils will be exempt from capital gains tax.
• Fixed-rate mortgages — to counter the effects of the recent increases in mortgage interest rates, the government is to oblige the banks to provide a fixed rate mortgage. Currently only three banks offer fixed rate mortgages on 30-year contracts, a number that rises to four banks in the case of contacts up to 10 years.
• State to subsidise by 50% interest rate increases on loans up to a value of €200,000.  This will be for families who are taxed up to the 6th IRS tax scale on mortgages contracted after July 2018 in cases where the effort rate exceeds the “stressed” interest rate – the rate at which a lender, a company or person that lends money to another close tests their loan. When something is borrowed by one person / entity from another. Normally it refers to money, and a rate of Interest is charged whilst the debt remains outstanding stipulated by the banks in the loan contract – The State will subsidise half of the value that is over the increase in the value of the mortgage repayment.
• Local Accommodation – The owners of self-catering guest houses will now pay an extraordinary  contribution whose revenues will be handed to the Institute for Housing and Urban Rehabilitation (IHRU) to finance housing policies, and to offset negative consequences that Local Accommodation can have on the overall price of housing. Moreover, the Government will prohibit the issuance of new Local Accommodation permits with the exception of rural accommodation in the interior regions of the country because it makes an important contribution to boosting the local economy. Current permits will be reevaluated in 2030 and every five years thereafter. 
• Simplification of municipal planning permission processes — the time taken to get planing permission for developments has been criticised by developers, particularly because of the costs implied from the lengthy time it takes to get a decision. Those municipal councils or public entities which do not fulfil the deadlines foreseen under the law for the issuance of reports will suffer financial penalties: they will owe outstanding interest to the benefit of the developer who can use these amounts to be set against the cost of the licence, or offset against IRS or IRC tax. 
• Credit of up to €150 million for municipal councils who refurbish empty or abandoned houses.            

The measures were outlined in a press conference by the Prime Minister António Costa, the Minister of Finances, Fernando Medina, and the Minister of Housing, Marina Gonçalves. 

The Portuguese Association of Real Estate Developers and Investors (APPII) said that the measures announced would not solve Portugal’s housing problem. 

“Apart from being insufficient, they exclude the building of more new housing which in our view would be the most important measure to deal with this crisis”, said Hugo Santos Ferreira, the APPII president.

Lisbon’s Mayor, Carlos Moedas also slammed the package saying that the Government had not even “consulted or sounded out municipal councils as to their opinions. “Housing is one of Portugal’s biggest challenges right now, but the Government did not consult or sound out the municipal councils. Lisbon City Council was certainly not consulted”, he said.

As to the political parties, the right-wing CDS-PP party called the measures an “unbelievable statement of failure”. The exemption on capital gains was “a dangerous decision that would not only not benefit the housing market, but distort its normal functioning and undermine transparency and supervision”.

The Local Accommodation Association (ALEP) said the package showed that the Government wanted to “kill the sector” and couldn’t understand the “Government’s “persecution of the Local Accommodation sector”.

The Portuguese Landlords Association equally were not happy. In a statement to Lusa, the ANP through its president António Frias Marques, said it was “difficult to believe that now, six years after pursuing the same housing policy, that practical measures aimed at providing housing for those who most needed it while at the same time simplifying the life of the landlords were now being implemented”.

The spokesperson for the Lisbon Landlords Association, Diana Ralha said that there needed to be an “unequivocal sign to landlords that there will be a change in direction” and that there were still fears such a change would not happen.

“The sign should focus on tax and legislative stability and reverse some of the very serious (damaging) measures taken by the government over the past six years” such as a continuation in rent freezes and the creation of an Extraordinary IMI property tax on landlords which should have been revoked.

The main opposition PSD party said the package showed a “Government that was closed and centred on itself.

Its president, Joaquim Morais Sarmento said the measures were completely out of tune with reality and increasingly close to positions of the extreme left parties in Portugal.

The far-right wing party Chega saw a return to an excessive involvement of the State, while the PCP communist party and left-wing Bloco de Esquerda said that the measures just continued to defend the interests of the banks while giving tax sweeteners to property speculators.

The Iniciativa Liberal party (IL) also said it would be the death of the Local Accommodation market, calling the measures “unacceptable and unconstitutional”.

Photo: Lusa – MÁRIO CRUZ