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Renting out homes in Portugal: the dynamics of a market with a lack of supply

idealista logo idealista 17/01/2022 redaction
What is renting a house out like in the current state of the market? We explain © Provided by idealista What is renting a house out like in the current state of the market? We explain

Rental housing is a market that is staying buoyant, even in pandemic times. More and more families are renting their homes in Portugal. The price of houses for rent is showing signs of growth. Rental subsidies continue at a good pace, although they do not reach all families. And there are even new rules and laws to take into account. Landlords, meanwhile, continue to call for incentives to promote "build-to-rent" and for the construction of affordable housing. All of this has marked rental housing in 2021. So what will it be like in 2022?

 
  1. Are more houses rented? And how are prices evolving?
  2. What do you need to know when renting a house?
  3. New rules in renting
  4. Rental subsidies: what are they?
  5. Affordable rent is necessary
  6. Increasing the supply of houses for rent is a challenge

Are more houses rented? And how are prices evolving?

The number of contracts signed is up. The details on prices are less clear © Provided by idealista The number of contracts signed is up. The details on prices are less clear

More and more families are turning to the rental market in the middle of a pandemic. The National Statistics Institute (INE) has reported that, in the second quarter of 2021, the number of new rental contracts leased increased 49.3% in comparison with the same period of the previous year, totalling 20,568 contracts.

And what about prices? According to Eurostat, house rents have increased by more than 20% between 2010 and the second quarter of 2021. And the most recent data from INE also shows signs of growth. The average value of the rent of houses rose 1.9% in November compared to the same month of 2020, a development that is in line with that found in October. Rents are also expected to rise by 0.43% in 2022.

That said it is important to note that the picture changes when analysing the median value of rents. Taking this measure, a reality emerges in which rents have consistently fallen throughout 2021.

What do you need to know when renting a house?

There are several things that you should be aware of before beginning thr process of renting your property © Provided by idealista There are several things that you should be aware of before beginning thr process of renting your property

Before renting a house, it is necessary to take into account a series of questions. First of all, it is important to know the correct use of the expression: is it houses to let (alugar in Portuguese) or houses for rent (arrendar in Portuguese)? In Portugal it is not uncommon to see both of these terms used in listings for properties. But it is important to note that the term "let" as defined by the Civil Code only applies to moveable property (for example vehicles, or tools and equipment). "Rent" is the term you want to use in your listing, as it is the correct term for non-moveable property, like houses.

With terminology for your listing cleared up, let's move on to what information it needs to include: the listing of houses for rent should also inform about the energy class of the buildings - a fact that is mandatory to indicate when placing properties on the market.

Visits to already rented properties can also generate headaches, so it is important to know what to do when visiting rented properties and how to avoid cases of rental harassment. In general, the landlord has very limited rights to examine the property, but contracts often stipulate rules for potential visits by third parties interested in the property. These can include rules on the length of visits, specific times for them to occur, and maximum number of monthly visits, for example, which so long as the landlord follows, permit the legal visitation of the property by interested third parties.

As can be seen from this fact; the signing of a rental contract is fundamental to safeguard the rights of both tenants and landlords.

New rules in renting

Their are new rules for real estate agents, and new powers to police the market for the IHRU © Provided by idealista Their are new rules for real estate agents, and new powers to police the market for the IHRU

In addition to this dynamic of the rental market, there are also new rules on the table. But what are they? Listings of properties for rent are constrained by a new law that obliges real estate agents to indicate their licence number, their permit to use the property, as well as its typology and useful area. Those who don't comply risk paying fines that may reach 44.890 euros in the case of companies and 3.740 euros in the case of individuals.

On the other hand, the Institute for Housing and Urban Rehabilitation (IHRU) will have new powers in the housing rental market, becoming responsible for the compliance with the legal norms of this market, thus being in charge of its inspection.

Rental subsidies: what are they?

With rent becoming more of a challenge, subsidies have been put in place © Provided by idealista With rent becoming more of a challenge, subsidies have been put in place

With rent prices on the rise in several cities, paying for the house every month becomes a real challenge for Portuguese families. A study by idealista showed that, in Portugal, the effort rate of families to pay the rent can reach 41%. Setúbal, Faro, Évora and Lisbon are the cities where the effort rates are highest in the country.

To cope with this expense during the pandemic, a subsidy for the payment of house rents - granted through loans by the IHRU - was created in April 2020 and extended until October 1, 2021. From the beginning of the programme until June, the IHRU received a total of 3,309 requests for rent subsidies from 2,553 families. But, until then, only 769 families have seen their loan approved.

Besides this, there are other rental supports managed by the IHRU: the supported rental regime, the support for young people's rental through Porta 65 and also affordable rental programmes. There is also support developed by individual municipalities to count on top of this.

Affordable rent is necessary

Whether the ongoing affordable housing programmes will be enough to satisfy the demand is unclear © Provided by idealista Whether the ongoing affordable housing programmes will be enough to satisfy the demand is unclear

The truth is that support does not reach all families. And that's why the supply of affordable housing is so important to ensure that all families have access to a decent home. But only 33.6% of homes to rent in Portugal offer affordable prices, according to a study by Aluga Seguro.

In an attempt to increase the supply of properties with affordable rents, the Recovery and Resilience Plan (RRP) plans to put 6,800 new affordable homes on national territory by June 2026. And for this project, it has access to sum that amounts to 774 million Euros. Note that this number includes the houses placed on the market by affordable rental programmes that municipalities have already put into effect as well as the State's own offer of real estate. But is it enough?

In order to face the new challenges of the energy performance of buildings and to adapt to the increase in the price of construction materials, the requirements of the dwellings built for affordable rent have been revised. The controlled cost housing scheme provides for the reduction of VAT to 6% for homes placed in affordable rental programmes for at least 25 years from the date of completion of the construction or rehabilitation works.

Increasing the supply of houses for rent is a challenge

Affordable rent or not, the housing supply in Portugal falls short © Provided by idealista Affordable rent or not, the housing supply in Portugal falls short

In Portugal, the supply of houses for rent - whether affordable or not - still fails to meet the demand. What is missing then, for this market to move forward?

Aligning public and private investment is one of the steps. There is interest in this from investors and property developers. But professionals are demanding more benefits and incentives for private investment in 'build-to-rent'. This may involve shortening the approval times for building permits, making more buildings available for rehabilitation and land for construction and creating an environment conducive to more private investment.

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