Market Prices?

Under the Portuguese government's residential housing rescue plan, the government sponsored property fund will buy your house and rent it back to you if you can't meet the bank's instalments.

Sounds like a reasonable measure, until you ask what the price of the house will be. "Market price" Of course the existence of a market price depends on there being a functioning market, which there isn't! So written valuations must be obtained from two Stock Exchange approved valuers. But even that doesn't get around the problem, as the valuers' comparative valuation basis must be "market price".

While they will be in huge demand, they will probably continue to be badly paid by the banks for their expertise. I'm glad I'm not in their shoes. Actually I am a valuer, but I'm not risking registering and assuming that responsibility for the pitiful fees that banks have paid in the past. It's a sad reflection on the risks of doing business, don't you think?

There is a twist in the tail though. Property tax (IMI) is payable based on the tax department's formula-based valuation of your property. So surely, either the fund should buy your house for that valuation, or the tax office should re-base the valuation formula (downwards) to reflect the new reality of market prices, for there to be fiscal justice!

Popular Taxation

The introduction of IMI (Imposto Municipal sobre Imóveis) in 2004 was a great step forward in balancing the taxation of property ownership in Portugal and stopping evasion on property transfers, now subject to IMT (previously SISA). The basic rule was that all transactions would be assumed to have been carried out at a price based on area, location and year of construction. Thus under-declaring transaction values to avoid transfer tax became pointless and practically died out since assessed values were very close to real values.

Property was thereafter taxed annually based on this same value, making property ownership a rather painful pastime, particularly for well-off people with large and new houses.

However, the property crash has caused a glitch in the system. Owners are now being taxed annually based on values that they cannot hope to achieve in the open market.

So what was the government's reaction? Tweak the tax rate downwards! That has a number of political benefits, such as benefitting the middle classes directly, while the reduction in tax revenue is hidden from the deficit calculation as the tax income was allocated to local authorities, not to central government. Of course, the underlying principle is wrong: there was nothing wrong with the tax rate, only with the property valuations, but since when has logic applied when votes are at stake?

I wonder what they will tweak next, as elections approach. Perhaps they should have left this one to next year, as there isn't much room for manoeuvre anywhere else...

Salão Imobiliário de Lisboa

I went to the opening day of the Lisbon Real Estate Fair yesterday. As usual, a mixture of good and awful exhibitors and stands, with some very interesting development on display. In the interesting category I would include (in alphabetical order):















http://www.troiaresort.pt

People & Business

Why does anybody read People & Business? Because it's free and delivered to their door.

Why is it free? Because everybody who is anybody in Portuguese property development advertises in it. Oh, and because if you don't buy the space, you don't exist.

It's a good scheme. Over the years, the editor has managed to establish such a wide web of contacts that he is invited to everything, with his photographer, publishing the awful photos of tipsy property boffins to fill the space between adverts and endorsements. It's a society magazine, nothing more.

I'm told, by somebody who should know, that the same editor has a value-added publication, which has to be paid for and contains useful research and statistical data on the Portuguese property market. If so, it's very strange that P&B has no adverts for that service.

Yes, I do read it, though it makes my skin crawl. The best part of the October issue? No photos of the editor's hat!