Rent control chokes portuguese property market

Isabel Palma has been trying to sell a seven-story building in Lisbon’s business district for six years. It doesn’t help that the property isn’t generating enough income to pay for maintenance and she can’t raise rents.

The six remaining tenants, including law firms and a hostel, have had their rents frozen for years or simply don’t pay anymore because they don’t fear eviction, according to the landlady, whose family has owned the 1,610 square-meter (17,330 square-foot) property since 1909. She gets a total of 1,100 euros ($1,490) a month in rent.

“I’ve spent six years in court and thousands of euros on lawyers trying to terminate leases with tenants who pay little or nothing,” Palma, 78, said in an interview. “No one wants to buy into a problem like that.”

Century-old controls on rents and evictions are stifling investment in Portuguese real estate and leaving the country with crumbling city centers as rental income fails to keep pace with maintenance costs, according to landlords and property industry groups.

The government has pledged to introduce measures in March to streamline rules on rental properties as it seeks to jumpstart an economy that’s had one of Europe’s weakest growth rates over the last decade. While legislation in 1981 lifted rent controls on new contracts and a 1990 law allowed landlords to set expiry dates on leases, more than half of Portugal’s rentals are subject to the older restrictions.

That means most owners are still coping with contracts that never expire and rates that are frozen or limited to inflation adjustments, said Miguel Marques dos Santos, an attorney specializing in real estate at the Lisbon office of Garrigues. Even death isn’t always enough to break a lease because tenants can pass on a contract to their children, spouses or parents.

Source: Bloomberg