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Portugal scraps rent controls, alarms low-earners

By Barry Hatton

Associated Press

Published: Tuesday, Oct. 2 2012 5:10 a.m. MDT

"People are in a terrible state of anxiety," said Lavadinho, whose association has around 20,000 paying members. It's not just low earners who are nervous, he says — lawyers, teachers and architects are among those turning up at meetings.

The rent reform hits as Portuguese struggle with other woes.

The cost of living has climbed, even as incomes have fallen sharply due to the country's austerity drive. The sales tax on gas and electricity, for instance, has jumped to 23 percent from 6 percent, leaving people short for other expenses.

A wholesale reassessment of property values by the tax authorities will establish by how much landlords can begin to charge their tenants. Lavadinho notes that step will also hurt the middle class. In apartment blocks along Lisbon's main avenues, he reckons, rents could jump from €200-300 a month to €1,000.

The main thrust of the new law is to unfreeze pre-1990 rental contracts. Those contracts still come under a 1910 law that, in the turmoil following the end of the Portuguese monarchy and the establishment of a Republic, sought to contain inflation. It stipulated that the initial rent could be increased only by a government-decreed annual rate, usually just a few percent.

Mindful that there are more tenants than landlords, and eyeing their electoral prospects, governments have long shied away from changing the law to any meaningful extent. The result: 150,000 households currently pay less than €50 in monthly rent, some of them in prime real estate areas, according to census data.

That is also a key to the mystery of downtown Lisbon's shabby charm. It's a western European capital trapped in 100-year-old laws that deny landlords the income to refurbish decaying buildings. Portugal's National Statistics Institute, in a report last year, bluntly stated the consequences: "Lisbon can be used as a textbook case on how to destroy a city without bombing it," it said.

Luis Menezes Leitao, president of the Lisbon Property Owners' Association, a national body with some 10,000 members, notes that foreigners find the old law hard to believe. Some people in central Lisbon, he says, pay as little as €5 a month in rent.

"This had to be done sooner or later," Menezes Leitao said of the legal changes. "Economically speaking, it's unsustainable."

Examples of what he calls "a gigantic distortion of the market" are not hard to find.

Susana Paiva's family owns a building on Lisbon's central Rossio square which is partly occupied by a hotel. The building's estimated real estate value is €4.5 million, which at market prices should bring in about €30,000 a month in rent. But the 34-room hotel, whose room prices start at around €150 and rise to almost double that, pays her just €633 a month. The rental contract dates from 1919.

Paiva has one word to describe that: "ridiculous."

She says the old-fashioned mom-and-pop stores which still abound in the area around her building are surviving only because they pay a handful of euros in rent per month. In effect, landlords are subsidizing businesses, she says.

"Low rents for businesses are pernicious in the 21st century," Paiva said. "It means that the people running them don't need to modernize, find new markets, become more competitive."

By contrast, the Lisbon Commercial Association, which represents the capital's shopkeepers, predicts the new law will bring "dramatic consequences" as stores, suddenly at the mercy of market forces, shut down and add to the country's record unemployment rate of 15.9 percent.

Elsewhere in the center of town, a seven-story apartment building owned by Jose Gago da Graca's family offers another bizarre example.

The tenant in apartment 2E pays €196 a month rent for a three-bedroom apartment. The occupant of 2D, across the hall, pays €1,600 a month for an identical second-floor flat.

That's because the elderly widow in 2E has been there since 1962 and her faded blue rental contract guarantees her tenancy in perpetuity, with controls on the initial rent which was the equivalent of €14. Her neighbor, who recently moved in when the previous occupant moved out, pays the market price.

"It's an absurd situation," Gago da Graca said. "This is a prime, sought-after area."

For Dourado, the elderly widow, times are hard and will likely get harder.

She vows to keep fighting the center-right government's policies, joining street demonstrations that have become almost a weekly event.

"They're not getting me out of here," she says of her home, and adds a dark threat: "If I have to go I'll go through the window, not the door."

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