What you need to know about the new lifelong housing contract in Portugal

The Portuguese Council of Ministers (Conselho de Ministros) approved a decree law on 14th February 2019 creating the Right in rem to Lasting Housing (Direito Real de Habitação Duradoura or DRHD), a scheme that aims to provide families with a stable housing solution and allow them to maintain their permanent residence in one home for their whole lifetime by delivering to the owner a bond and a payment for each month of the duration of the contract.

This was one of the decrees approved under the New Generation of Housing Policies (Nova Geração de Políticas da Habitação or NGPH).

1. Right in rem to Lasting Housing (DRHD)

"With this measure, the holder of the DRHD (the resident) has the right to reside all their life in one home, but may renounce the contract; it also reduces their need to go into debt to buy their own dwelling; it gives them the right to return, in whole or in part, the guarantee they have given, depending on the length of the stay in the dwelling; it allows them to mortgage the DRHD if they need credit to finance the guarantee," explains the Portuguese Government in a statement.

The owner, meanwhile, "will have more capital available, without this implying the need to sell assets", at the same time as "enjoying a stable profitability" and "a reduction of charges in relation to the management of assets". At the same time, "the risk of default by the resident is reduced by means of the guarantee", says the Executive.

According to João Pedro Matos Fernandes, Minister for Environment and Energy Transition, the deposit to be paid should be "between 10% and 20% of the value of the property". The governor explained that if the resident only remains in the house for ten years, the value of the deposit will be fully returned by the owner. "After ten years, only 5% of the same deposit will be returned per year, which means that after 30 years of housing, the resident is no longer entitled to any deposit,” he said, although the agreement is named a "lifetime" contract.

2. Affordable Lease Program

Another piece of legislation approved by the Council of Ministers under the NGPH was the Affordable Lease Programme (Programa do Arrendamento Acessível or PAA), which "is voluntary and aims to promote an extended supply of rental housing at reduced prices compatible with household income".

According to the Government, the PAA aims to provide a response to the housing needs of families, whose income does not allow them to access the housing market suitable for their needs. It is a measure that "aims to encourage the supply of rental housing at reduced prices", promoting "greater attractiveness, security and stability in the sector".

"The PAA can be applied within the scope of municipal programmes, thus contributing to the development of the public rental supply accessible in the respective municipalities", reads the communiqué of the Council of Ministers.

3. Special rental insurance scheme under the PAA

This is a law that aims to "promote the creation of adequate insurance for the lease contracts to be concluded under the PAA". According to the Government, this measure "ensures that tenants are protected against involuntary income losses and that landlords are paid the rent they are due and receive compensation in the event of damage to their homes".

The insurances in question, as created under the AAP, "provide an opportunity to reduce costs and to improve and perfect the supply of existing rental insurance, thus contributing to greater security of tenancy in general", the document states.

4. Compulsory building work

This Decree-Law, which "amends the rules applicable to the subpoena for the execution of building work to correct the poor safety or health conditions of the houses and in cases where the owners do not comply with their legal duty, (...) provides for action at various stages of the procedure:

• Notification for the subpoena of the due act;
• Taking control of the execution of mandatory work;
• Creation of legal mechanisms that allow the reimbursement by an administrative authority of all expenses incurred in the carrying out of obligatory works.”

According to João Pedro Matos Fernandes, this measure provides that the municipalities be given "an increased and faster power" to do compulsory works "in buildings that are vacant". In the event of non-compliance by the owners, the municipalities may proceed with the forced lease of these properties, until they are reimbursed for the outstanding value of the works they financed.

5. Increase in the IMI tax for vacant properties

Also approved was the Decree-Law that increases the Municipal Property Tax (Imposto Municipal sobre Imóveis or IMI) on vacant buildings in areas of high urban pressure. It provides, therefore, the possibility for local municipalities to increase the existing IMI rate for these properties.

"The measure introduces the concept of an area of urban pressure, linking it to areas where there is a significant difficulty of access to housing, either because the housing supply is scarce or inadequate or because that supply is only available at values higher than those affordable by the majority of households without them becoming overloaded with housing costs in relation to their income," says the statement of the Council of Ministers.

According to the document, it is up to each municipality to make the change, using indicators such as housing market prices, family income and housing shortages that have been detected.

6. Controlled Cost Housing

Finally, an ordinance was approved which updates the area and cost parameters to be met by the promotion of Controlled Cost Housing (Habitação de Custos Controlados or HCC). It "revokes a previous law which was 22 years old, in order to adjust the parameters in the light of developments in the housing sector and encourage the promotion of HCC in areas of higher demand for housing, thus serving as a regulatory instrument of the market".

"This ordinance has a broad scope, promoting HCC not only through new constructions, but also the rehabilitation of buildings intended for sale or lease at affordable prices," reads the statement of the Council of Ministers.