The Mais Habitação program is a government initiative to address the steady increase in property purchase and rental pricing in Portugal. This step also comes after the rapid increase in interest rates, which has cooled down real estate markets globally but has not impacted the buoyant Portuguese real estate market, demonstrating an extraordinary increase of 11.4% over the 12 months leading to Q2 2023.
This increase, along with a general increase in the cost of living in the year following the recovery from covid, has led to increasing public pressure for the government to act.
While all parties, from all political spectrums, are interested in solving the housing crisis, there is deep division as to the reasons that led to it and the steps required to improve the situation. To the opinion of many, the Mais Habitação program is a set of radical steps, which might cool the market in the short term, but will eventually boomerang as it does not encourage the construction of more houses. It rather risks driving landlords and operators of vacation rentals to withhold their declaration of income or otherwise find other creative ways to go around the measures imposed.
The program was already approved by the parliament – where the government enjoys an absolute majority, but it remains extremely controversial and is still pending the approval of the president of the Republic. He can veto some elements or otherwise deem that they will be sent to the constitutional court to determine their eligibility, but he has already announced that he will not send it to the court. His decision regarding the veto should be made any day now.
This blog does not address all the new property regulations in Portugal but focuses on some key aspects which relate to the benefits, opportunities, and also disadvantages from a homeowner’s perspective. A different post will also cover changes related to the regulation and bureaucracy involving construction and renovation work. It should be clarified that this guide is based on our best understanding of the situation and is in no way an alternative to professional consultation with a certified accountant and/or lawyer.
Key Changes of the new property regulation in Portugal and their impact explained.
The Mais Habitação program introduces several key changes, including some negative and some positive ones –from a property owner perspective:
Changes – Rent
The tax on income from rent is reduced from 28% to 25% for contracts of up to 5 years. This reduction will apply only to contracts celebrated or renewed after the application of the law, and only if the value of the rent does not exceed the maximum values set per municipality by more than 50%. The maximum values can be found here.
10% Exemption on rental income - For this type of rent, there will also be an exemption of 10% on the income received, so only 90% of the income is considered taxable. This means that the overall effective tax (before any deduction is made) on long term rent contracts with a duration of less than 5 years will be 22.5% (compared with 28% today).
A cap on rent increases - Landlords can only increase the rent of their properties by 2% per year, regardless of inflation. This limit will not apply for rents lower than the values indicated here. It should be noted that the reference rent will be the last registered rent in the finance office during the last 5 years, so the limitation on rent increase will be relative to the last contract value, even if this contract was in place before the current landlord became the owner of the apartment. Note that the measure applies to any registered contract, including sublet or mid-term contracts of 3 months.
Longer lease contracts are preferred – and will enjoy a higher reduction in tax on rent – 15% for leases of 5 to 10 years, 10% for lease contracts of 10-20 years, and 5% for lease contracts longer than 20 years. However, this means that as a landlord, you will be "stuck" with the same rent and tenant for a very long period. Considering the yearly rent increase observed over the last few years, this may not be a smart move for everyone.
Rent under affordable rent programs encouraged – Exemption from personal income tax and corporate income tax on property income obtained from properties that are part of municipal programs for lease at affordable costs or used for student accommodation.
A tax exemption for landlords who rent out their properties at affordable prices: landlords can be exempt from paying municipal property tax (IMI) and stamp duty (IMT) if they rent their properties at a price below the market value. This tax exemption is expected to encourage landlords to rent their properties at more affordable prices.
Transfer of properties from vacation rental (AL) to long-term rent is encouraged - A full exemption from personal or corporate income tax until 31.12.2029 if the property has previously been used for short-term rental (AL) and is now rented as a long-term lease. Provided that the registration of the AL license was concluded until the end of 2022 and that the long-term lease was registered in the finance office until 31.12.2024.
Easier to evict nonpaying tenants – To increase landlords' confidence to rent out their property, the state simplifies the eviction process. Now eviction requests will be submitted to a special government body, and the tenant will only have 15 days to respond or counter the request. When there is a rent default of more than 3 months, the state will intervene and pay the rent up to a monthly limit of 1140 Euro (2023) and a total limit of 6840 Euro (2023). The state will then be responsible for collecting the debt from the tenant instead of the landlord.
What is the impact of these accumulative changes on you as a landlord,
and what can you do about it?
For most foreign landlords, the most relevant regulation changes are on the positive side: the significant tax benefits on long-term rental income, which is effectively reducing the tax burden to 22.5%, which is a 20% relative decrease compared with the rate today (28%), and on the negative side, the 2% cap on rent increase. Again, these restrictions will not apply to your apartment if you charge rents lower than the ones in the table below:
What can you do about it?
If you are renewing a rental contract now, consider renewing it for a higher value. Consult your lawyer or management company about this.
If you renew a contract after the law has come into force, you may consider offering additional services to your tenants, such as utilities and internet already included in the price, furniture rental, or support services for fixes and others. Consult your lawyer or management company on offering additional paid services to your tenants. This could be offered as a vat exempt service, and the cost can be added to the cost of your rented apartment.
Wait for the next government to cancel this law, which the opposition has already announced: it will. The elections are only two years away, and the 20% relative tax reduction is more than enough for you to benefit from in the next two years.
In any case, always remember that there are some expenses that you can deduct from your due taxes:
Conservation and repair work on the leased property;
Municipal Property Tax (IMI);
Condominium expenses;
Any commissions paid to real estate agents arise from the conclusion of a lease agreement. Ask your accountant to submit these with your annual report.
Changes in Local accommodation or AL (alojamento local)
In general, the new law is evidently hostile to the local accommodation sector and sets multiple regulations, fees, and limitations to limit new activity and to convince owners of such establishments to convert their properties to long-term rentals.
Existing AL licenses expire by 2030 – At which point they may be renewed for consecutive periods of 5 years. This limitation does not apply to properties with pending home loans on 31.12.2029, and the license will not expire for such properties.
Yearly fee on holders of AL licenses (CEAL) - An Extraordinary contribution (CEAL) based on the locations and size of the property is levied on AL establishments:
This tax is imposed on AL establishments, even if they did not earn any money during the previous tax year.
The extraordinary contribution will not be applied to properties in the interior, independent houses, or entire properties (even if these houses are not in the interior, such as in Lisbon or Porto). It will also not apply to the room modality (in the case of primary residence with a part used for hospitality), when used until up to 120 days a year.
This is an extremely controversial measure, and many see it as unconstitutional. It is to be seen if this move is challenged by the president or otherwise by an appeal to the courts.
Considerably harder to start new local accommodation activity – The law effectively blocks new AL licenses for apartments and hostels in the populated and coastal regions of the country – which includes the greater Lisbon and Porto regions and the Algarve, as well as the majority of the coastlines). This suspension does not apply to:
A. Councils in the interior of the country which are indicatively marked in blue on the map below and detailed here. B. The autonomous regions of Madeira and the Azores.
C. Private houses, regardless of their location in the country.
D. Rooms in apartments/houses regardless of their location in the country. The AL owner title must have his tax address (primary house) on the property. It could be the property owner or a person that subleases.
E. If you own the entire property (propriadade total), and there is no division to apartments (horizontal property), you can get an AL license for rooms (each apartment can be a room), or for a hostel regardless of the location in the country.
In the interior regions, it is still possible to issue licenses for apartments. However, the owner must present the municipality with the approval of 100% of the other neighbors in the building and It is unlikely that neighbors will have any interest in allowing such activity. In the case where the building is new, there could be a clause in the sale agreement and in the building rules that regulates this in advance. It is important to remember that AL is still a very profitable activity with relatively low taxation. Under the simplified regime (2023), only 35% of the income is considered taxable income. This means that if you have an AL that is working 365 days a year it is worth keeping it. However, if you are operating the apartment for only part of the year, and live in it for some months for example, you may consider moving it to mid-term or long-term management. You can contact us to learn more about how to optimize your rental under the new situation.
Condominiums can cancel AL licenses A condominium can cancel the AL license of any apartment by vote of 2/3 of the owners and without any special reason.
IMI (City taxes) can be doubled or even more for AL properties – The new law does not recognize the depreciation of alojamento local establishments and the factor for calculating their value for tax will always be. Having said that, the book values of older properties are many times 20% of their market value, and the base IMI values are not high (100-200 Euro a year).
AL licenses cannot be transferred – except in cases of disease and inheritance. If your management company has the AL on their name however, the new owner will still be able to work with them and benefit from it.
It is important to mention
Taxes when selling property
Exemption from capital gains tax when the profit covers a house loan for primary housing. This is relevant if you live or intend to live in Portugal, and for transactions made between 1.1.2022 and 31.12.2024 and for those with a property used as their primary house in Portugal.
You will not pay capital gains tax if you sell your house to the state.
A sample of our Mojo properties currently on offer for sale:
Main house: 3 bedrooms, 1 bathroom, kitchen and living. The house is legal and 80m2. Great opportunity for renovation.
Price: €365,000
Size: Built-80m2, Land-600m2
Price per built m2: €4562.50
T3 Rural House Marvão, Alentejo A perfect choice of investment for eco-tourism with few neighbors and near Marvão. T3, 2 fireplaces, 2 baths, 2 floors with loft space on top floor. Small pool, fig trees, rose bushes, chestnut tree and citrus trees. Automatic garden water system and garage. Still eligible for AL under the new law and can generate a nice and steady income as well as a perfect getaway for the owners.
Price: €280,000
Size: 215m2
Price per m2: €1302
Land size: 448.5m2
T1 apartment in Lisbon centre Spacious and sunny apartment in Arroïos with incredible views over Lisbon. Renovated in 2018. Fully equipped and furnished. can continue to work in the AL market since it is managed by our management company. Currently yields about 4.5% net after taxes in Portugal.
Price: €300,000
Size: 47m2
Price per m2: €6,382
T2 apartment in Alcântara Dining room, separate, fully equipped kitchen. Two bedrooms and a living room. Views overlooking Alcântara and Estrela.
Can stay in the AL market under our management.
Price: €160,000
Size: 38m2
Price per m2: €4210
Lovely nest in the heart of Lisbon Newly renovated apartment in a low-ceiling cosy flat, in the center of everything! Avenida da Liberdade, the Tivoli Theater, and Rossio Square and Station. This apartment will not have a cap on rent as it has been in the AL market for the last 5 years.
Price: €198,500
Size: 20 m2
Huge T3 villa with land Be a gentle[wo]man farmer in the stunning Dao Region Lagares da Beira | Coimbra Semi-detached 3 bedroom villa in granite with 3 floors and annexes. The property includes a large land area with a designation for construction. Located in one of the most beautiful parts of Portugal – in the Dao wine region.
Cost: € 139,000
Size: 332 m2 built + 2363 m2 land
Price per m2 built: € 418
Stylish T3 bright apartment in Penha de França, Lisbon.
Full equipped kitchen, high ceilings with original flooring. This apartment is an an area that is in high demand by local families for living and can be rented for 1500 Euro/month.
Price: €285,000
Size: 64m2
Price per m2: €4453
Mojo is a Boutique Real Estate guiding and assisting investors and buyers in Portugal. We scout and cherry pick the best possible property within your brief and budget. We manage and coordinate the purchase process with expertise in renovations.
Call / text via whatsapp: +351.962.621259 | Follow us on Instagram Mojo for sale: properties for sale in Alentejo Mojo Concierge: short and long-term rental