Holiday rental changes set to damage tourism industry

Holiday rental changes set to damage tourism industry

The president of the Alojamento Local em Portugal (ALEP) association warns of the “destructive” nature of the holiday rental changes and that the biggest impact will be felt in the Algarve.

For months, Alojamento Local (AL) property owners have been fighting the government’s proposed changes to holiday rental laws, targeting apartments in cities and more heavily populated areas, which they believe could have a serious impact on the tourism industry.

While the changes were still going to be voted on in Parliament on Wednesday (July 19, after the Resident went to press), they will almost certainly be approved due to the ruling majority PS government – after which the changes will still have to be promulgated by the President of the Republic.

“The probability that these changes will be approved (in Parliament) is huge, so people are already preparing for these changes, which will have a huge short-term impact and will ultimately cause great damage to the sector” Eduardo Miranda, president of the Alojamento Local em Portugal (ALEP) association, told the Resident.

The changes are part of the government’s controversial ‘Mais Habitação’ (More Housing) programme and have been presented as a way of ‘freeing up’ more houses in a bid to tackle the country’s housing crisis.

But as AL property owners stress, this is far from the truth.

“This won’t affect the housing crisis at all. Most AL properties will continue to be used as holiday accommodation. What is happening is the destruction of a sector, without gaining anything in return. And that is what we have been trying to warn people about,” Eduardo Miranda told the Resident.

He warned that these measures “were not well thought out” nor did they take into account the “reality of the country”, because the AL regime is one of the driving forces behind Portugal’s flourishing property market.

“The property sector will feel a huge impact because AL (holiday lets) was one of the main reasons people bought apartments. In other words, people will lose one of the most important reasons to buy a property,” he told us.

ALEP also fears that this ‘attack’ on the sector will drive property owners back to the “unregulated rental market.”

“These changes are turning back the clock on 15 years of progress because the State is making it impossible for owners to rent their properties legally. We know that demand for these holiday units has always existed, and AL was able to bring it over to the legal market, creating jobs and paying taxes along the way. Now we are taking a huge step back,” he explained.

Eduardo Miranda also believes that the country’s reputation will take a hit due to these changes.

As he explained, “when laws are being changed all the time and the rules of the game are altered halfway through”, investors will start to “question” whether Portugal is the right place to invest.

“Portugal and especially the Algarve was probably one of the Europe’s biggest success stories, having been able to convert a seasonal activity into a legal business. But these changes will act as a huge discouragement for the sector,” he lamented.

What changes are planned?

  • No new AL licences are to be issued until December 31, 2030, for apartments or accommodation units such as hostels within buildings. Excluded are Portugal’s autonomous regions, 165 “low-density municipalities” and 73 “low-density” parishes. Townhouses and stand-alone villas are not included in the proposed AL changes. However, ultimately, municipal councils will have the deciding power over the issuance of new AL licences – these may be suspended should a “housing shortage” be declared by the municipality, and for as long as the declaration remains in effect. Each municipality must also create its Municipal Housing Charter, finding a “balance” between housing, holiday units, student accommodation, commerce, industry, and other activities.
  • AL properties that are not being used may lose their licence unless the owner submits an income declaration within two months after the law comes into effect. The licence may also be cancelled after a property ownership transfer, except in situations of inheritance, where the licence may be transferred to the new owner.
  • All licences currently in force remain valid. AL registrations issued up until the date when the new rules come into effect will only cease to be valid on December 31, 2030. After that, they must be reevaluated and can be renewed for periods of five years. The decision of renewal will be the responsibility of the municipalities.
  • The creation of the Extraordinary Contribution on Local Accommodation (CEAL) is foreseen. This tax, which was initially announced to be 35% and then 20%, will now be set at 15% and will only apply to apartments. The tax rate will vary according to the property area, the income from its operation, the evolution of rental prices, and the urban pressure of the area where it is located. CEAL will not be applied to Local Accommodation establishments located in low-density areas.
  • Condominiums will have the power to cancel AL licences granted to apartments. More than half of the building’s permillage must oppose the licence in order for it to be revoked.
  • AL property owners considering switching their property to the long-term rental market will benefit from income tax (IRS) and corporate tax (IRC) exemption on rental income until December 31, 2029.

Changes in holiday rental laws see owners protest in Porto

Dozens of Alojamento Local (AL) property owners demonstrated in Porto last Saturday (July 15) against government measures brought in to further regulate the holiday rental sector.

Their principal beef is with the power granted by the government to condominiums to dissolve their business.

In owners’ perspective, the development brings risks to tourism. It also severely compromises their own business activity.

Praça D. João was the venue for the dramatic appeal for a re-think. The 304 bags, each representing 200 families, carried words in various languages related to tourism and complaints from the AL sector.

Ana Sofia Rego, one of the owners involved, told Lusa: “We are protesting against the measures that will end the work we have created.

“During the crisis between 2008 and 2011, I was out of work. I gathered everything I had, with the help of my parents and my in-laws, and renovated a small apartment that had been empty for more than 20 years in the centre of Porto, thus creating my own job.

“Each of these 304 work bags symbolises families who, like me, depend on their small local accommodation business” to help finance their lives.

Ana Sofia referred to “a study carried out by the Local Accommodation Association of Portugal, which concluded that there are about 60,000 families in Portugal directly dependent on their local accommodation business”.


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