Bad News for AirBnb May Mean Good News for Expats
Possible New Rental Rules in Portugal and Their Impact
In September 2019 The Financial Times suggested: “Airbnb investors are destroying Europe’s cultural capitals”. It turned out that Lisbon is the European city with the highest ratio of Airbnb houses – around 30 per 1,000 residents. In July 2020, the mayor of Lisbon pledged ‘to get rid of Airbnb’ after the pandemic. It was determined that the historic Alfama section of the city, which once boasted 20,000 residents now had only 1000 full-time residents. Some other European capital cities have limited the number of short-term/vacation rentals that would be allowed. But Portugal is really trying to change the rules.
AL, i.e. Alojamento Local
If you rented an Airbnb or VRBO in Portugal you likely had a small acrylic sign outside the door of the apartment which read “AL”. This translates to “local accomodation” in English and is the term used for short-term/vacation rentals in Portugal. If you didn’t have such a sign, the owner was trying to fly under the radar. Under the old rules, all owners of such apartments should have registered them and gotten a number like the one you see in the listing above. Of course, not everyone did.
According to a recent report by The Portugal News in December 2020, almost 50 percent of accommodation in Lisbon registered on the Airbnb digital rental platform does not have a valid license, with 30 percent of the properties not even having permission to be used for this purpose, according to this study.
Proposing the implementation of a license approval process by Turismo de Portugal, the authors explain that they found “cases of licenses whose spaces are left blank or are filled with ‘Airbnb123’”, according to Lusa News Agency. “In the most extreme case, we found the same license to be used for 24 properties. — The Portugal News
Taxes and Their Consequences
Often legislatures pass laws that have unintended consequences. (I am reminded of Florida’s Governor DeSantis and his latest culture-war legislation to revoke Disney’s status. Certain to be determined to be illegal, if it was not it would increase local property owners’ taxes by 25%. But of course, the majority of those property owners did not vote for him. But I digress…) Back in Portugal, AL listings had certain tax benefits not afforded to other landlords. Specifically, the taxation rules stipulated that only 35% of the AL income was subject to tax representing a 13.5% rate for those in the highest bracket. Meanwhile, those offering long-term agreements were forced to pay a flat tax of 28%. Sometimes we just don’t think these things through….
And in this case, we find that Portugal’s reliance on tourism and its tax law had unfortunate consequences:
It limited the number of units available for long-term rentals (i.e. normal residents) … the availability of long-term rentals in Lisbon decreased by 70% over the past five years. Note, we found an extreme scarcity of long term rentals when looking for our new apartment in VRSA;
Drives up the cost of rent and purchase prices. The price per square meter has increased by as much as 12% per year.
Cities have “paid a social price” as “essential workers and their families have increasingly been forced out” hollowing out the city’s “unique character”, according to Lisbon mayor Fernando Medina.
Finally, local residents may have been disturbed by noise and/or disruption caused by temporary residents that are on vacation.
Against this background, the Supreme Court of Portugal ruled on 21 April 2022 that permanent and temporary housing (for tourist purposes) cannot reside in the same building. Now as you read this I suspect you are also thinking…yikes!
Of course, there are investors who in good faith purchased apartments, furnished and equipped these properties to satisfy the vacation rental market who have now been thrown one heck of a curveball.
One might think it would have made more sense to prohibit new AL units. Or limit the number of AL units and create incentives to allow owners to repurpose their units for long-term rentals.
Or perhaps one could address the tax code that incentivizes short-term rentals.
Finally, some would argue that Algarve will be disproportionately impacted as it is a holiday destination. As such, a more targeted approach may be required.
Judges are already suggesting that there will be multiple challenges to the ruling. It should also be noted that the courts aren’t in a position to create the legislation necessary for this issue. So at this time, we are not certain what the future will hold. However, as one person on the ground, I can share our (limited) personal experience. The apartment we are renting is owned by a man that owns multiple AL units in VRSA. After the currently booked Airbnb reservations are satisfied he is converting all of his units to long-term rentals.
Some would say he is overreacting. And I don’t think you are going to see Portuguese listings disappear from Airbnb or VRBO in the immediate future. However, there might be some good news in this for people moving to Portugal. First, it could mean it will be easier to find a one-year rental agreement to satisfy D7 requirements. And that there will be more furnished/equipped units to choose from. Some are also suggesting that prices (both to buy and to rent) will come down a bit, just as they did in 2019.
Given the importance of tourism to the Portuguese economy, there are likely to be lots of challenges … and the Portuguese legal system is not recognized for its speed. So stay tuned….
Thanks for another well-researched article. I hope you're right about the possible increase in long-term furnished rentals. We had real problems finding apartments to rent in Porto and Lisbon/Cascais. Your points about the tax inequity are spot on. It should be no surprise that the short-term rentals increased when they were effectively incentivized by the lower tax rate. Anticipating the unintended consequences is something that legislators around the world seem unable to do well.
Excellent post. Love getting into the nitty gritty details of this. Also, I love your digressions, in this case DeSantis. Clearly you have not stopped following the news in the country you left behind because of the big right turn it took in 2016. You made a good decision then.