Lawyer and Honorary German Consul Alexander Rathenau expresses his views on the rampant proliferation of thousands of illegal constructions in the Algarve
Alexander Rathenau, a lawyer and Honorary Consul of the Federal Republic of Germany in Lagos, is well acquainted with the region’s real estate landscape. He criticises the inefficiency and inaction of local authorities, particularly municipalities.
“City Councils, on the one hand, are slow licensing construction projects, yet on the other hand, allow the uncontrolled proliferation of thousands of illegal buildings. The result is a real estate scenery of disorder, as if the Wild West principle of ‘every man for himself’ prevails without any effective oversight.”
What do you mean when you refer to the “Wild West”?
Alexander Rathenau: In the Algarve, particularly in the Western Algarve, large-scale illegal construction has been occurring for several years, often hand in hand with land works and the destruction of nature, sometimes even leading to the obstruction of public rural tracks. In the countryside of Lagos, Vila do Bispo and Aljezur, which I know well, there are thousands of illegal constructions – with new ones popping up every day.
A common practice is to set up prefabricated houses amidst the landscape, as well as hundreds of tents, caravans and other makeshift or precarious housing. This poses a serious problem as it results in the gradual destruction of the environment, particularly in sensitive areas such as those classified as National Agricultural Reserve (RAN), National Ecological Reserve (REN) and the Costa Vicentina and Southwest Alentejo Natural Park.
Nonetheless, the number of illegal constructions continues to grow without effective control. In fact, many people who build unlawfully have enough financial resources to purchase a licensed home. They choose not to do so for various reasons, and several factors contribute to this trend.
How is it that the number continues to increase?
The City Councils, which are meant to serve as the primary inspection bodies, fail to intervene or do so ineffectively. Even among foreigners, it has become widely recognised that illegal construction in the area seldom faces repercussions. Even when demolition orders are issued, they are rarely carried out.
When individuals observe that their neighbour is constructing without a licence and faces no consequences, they perceive it as unjust to adhere to the regulations and ultimately follow suit.
Many people who inherit land deemed unbuildable construct illegally to later sell at inflated prices, often with the complicity of real estate agents.
And what about the so-called mobile homes?
I find it unacceptable that the legislator has yet to adopt effective measures to prevent the mass commercialisation of mobile constructions. The number of sellers of prefabricated structures and their advertising is increasing due to rising demand. The sale of these structures should be prohibited unless an urban title legitimising their construction is presented. An entrepreneur who makes a sale without this prior control should be jointly and severally liable for the costs that the City Council may incur in removing the clandestine structure. An approved project requires an electrical connection, whereas the installation of an illegal building can occur without any control. This situation is unsustainable and cannot continue.
Why do you claim that the city councils fail to act?
For several reasons, mayors elected by popular vote avoid adopting unpopular measures, such as demolishing illegal constructions, to preserve their party’s image and their own chances of re-election, even when the law obliges them to act. Even more concerning is that most municipalities only take action against illegal construction when there is a formal complaint from someone, such as a neighbour, thereby undermining the rule of law itself. Additionally, many councils lack sufficient financial resources – or choose not to allocate funds in the budget – to demolish illegal constructions.
“Mayors elected by popular vote avoid adopting unpopular measures, such as demolishing illegal constructions”
Does this mean that municipalities ought to encourage demolitions?
Municipalities have a legal obligation to promote the demolition of illegal buildings that do not comply with urban planning standards and cannot be legalised.
The legislation stipulates that if the owner does not voluntarily undertake the demolition within the designated timeframe, the City Council must carry out the coercive execution, taking administrative possession of the property and performing the necessary work to remove the unlawful structure. The costs, including any compensation or relocation expenses, are the offender’s responsibility and may be recovered through tax enforcement or, in certain circumstances, through forced rental of the property.
However, the principle of equality in administrative law stipulates that similar cases must be treated alike, which presents a practical problem for local authorities. If a city council chooses to demolish an illegal construction, it should, in theory, apply the same measure to all other similar infractions. However, given the scale of the problem, with thousands – or even hundreds of thousands – of illegal constructions in the Algarve alone, it becomes unfeasible to implement this principle uniformly. This raises questions about selectivity in the inspection and execution of demolitions, which can generate perceptions of injustice among citizens and political challenges for municipalities in handling these situations.
In practice, what other measures could effectively combat illegal construction?
Another key aspect that the legislator should consider, should it decide to implement measures to combat illegal construction, is creating an effective mechanism to hold accountable those who carry out contract work in the context of illegal construction. This includes companies that carry out unauthorised land works and erect buildings without prior control, among other infractions. Those companies should be held liable, as should the property owner, for the costs of demolishing irregular constructions and, in my opinion, should be subject to the payment of large fines.
In addition, the law should expressly provide that real estate agents are held liable for the financial damages suffered by buyers who acquire clandestine or semi-clandestine properties unless they can demonstrate unequivocally that the buyer was fully aware of the property’s urban irregularity.
What is your opinion on the controversial new land law?
The land law is a good tool to facilitate municipalities’ creation of urban land. However, there is a lot of misinformation surrounding this legislation, which leads, wrongly, to the perception that City Councils now have an arbitrary power to convert agricultural land into buildable areas.
One of the most relevant changes introduced by this law is the possibility of reclassifying agricultural land adjacent to urban areas for housing purposes, provided that it meets certain criteria. The main objective is to facilitate the development of new residential neighbourhoods and ensure more balanced urban growth without compromising sensitive ecological areas.
“The land law is a good tool to facilitate the creation of urban land”
What do you suggest to stimulate the Portuguese economy and the housing sector?
Portugal should consider a combination of economic stimulus and strategic fiscal adjustments. One option could be the progressive reduction of Corporate Income Tax (IRC) to relieve companies and attract investments. The Portuguese government has already announced its intention to reduce the current rate of 20%.
If the mainland were to adopt the same reduced rate of 15% – similar to the 14.7% already applied in Madeira and the Azores – this would send a positive signal to international investors. Higher rates could be established for large companies with very high incomes, ensuring a balance between tax competitiveness and tax fairness.
Additionally, tax benefits and financial support for start-ups and small businesses could boost the economy and increase tax revenue in the long run.
The new tax regime for non-habitual residents, known as NHR 2.0, is unappealing, as it restricts tax benefits to a limited number of professions and only when exercised in companies with specific characteristics.
The legislator ought to reconsider the programme and make it more inclusive. A more comprehensive regime that offers tax incentives to a broader range of professionals – irrespective of the company in which they are employed or whether they work as freelancers – would help attract qualified talent to Portugal.
And what about those who choose Portugal to enjoy their retirement?
Pensioners choosing to move to Portugal should once again benefit from this status, having brought a significant amount of capital into the country over the past 15 years.
It is important to emphasise that the presence of these pensioners, whether they bought or rented housing, is not responsible for the shortage of affordable housing in Portugal, as some politicians suggest.
How do you evaluate the current tax advantages for investors in Portugal?
I believe the legislature ought to reconsider specific tax exemptions that have not yielded the anticipated results, reallocating these resources towards more effective and sustainable policies. Indeed, the entire Statute of Tax Benefits should undergo a comprehensive review.
Modernising tax collection systems and strengthening the fight against tax evasion are also essential. The use of technologies such as artificial intelligence could enhance the efficiency of tax collection and hinder tax evasion practices. Awareness campaigns and increased transparency in administrative processes would be crucial for bolstering citizens’ trust in the tax system and encouraging greater compliance with tax obligations.
For instance, it is difficult to understand why someone who registers as a tax resident in Portugal isn’t automatically notified by the Tax Authority to file their IRS return. Many of my clients are tax residents in Portugal but have never received any notice from the tax authorities regarding this obligation, even though it is explicitly outlined in the current tax legislation.
Legal regime of leasing is “excessively complex”
Alexander Rathenau considers that “sensible measures have been introduced, such as the gradual reduction of the tax burden for landlords who enter into long-term rental contracts”.
Even so, “the challenge persists for many families in Portugal to consider purchasing a property using mortgage credit as more advantageous than renting”. A perception that “hinders the development of a stable rental market and contributes to the high level of indebtedness of Portuguese families”.
The lawyer believes that “complementary measures, such as enhancing incentives for affordable renting for the middle class and social housing, could further bolster the rental market. Simultaneously, more effective regulation of short-term rental modalities, such as Local Accommodation (AL), could help increase the availability of properties intended for permanent rental.”
If, until now, the legislature has provided municipalities with “tools to regulate Local Accommodation in their respective areas, allowing the adoption of proportional measures tailored to the specific needs of each municipality, without resorting to generalised prohibitions”, it should also reform the legislation on long-term rentals.
A law reform would “prevent owners from feeling discouraged about placing their properties on the traditional rental market. Today, there are provisions that deter potential landlords”.
An example of this is the automatic renewal of lease contracts. “A contract concluded for one year shall be automatically renewed for a further three years, unless there is a clause to the contrary. This rule not only appears disproportionate but also creates insecurity among owners, as it fails to meet the common expectations associated with contracts of limited duration”.
“On the other hand, clearer and more balanced regulations could bolster confidence in the rental market and stimulate housing supply. The legal framework for rentals in Portugal remains excessively complex, making it challenging for those considering making their property available for traditional rental to reach a decision. Simplifying legislation and ensuring a fair balance between the rights and responsibilities of landlords and tenants is vital for enhancing and stabilising the rental market in Portugal”, he concludes.
Global solutions to the national scourge
Rathenau believes that a combination of measures could significantly contribute to addressing the housing crisis and fulfilling the needs of the population.
One primary measure is to promote the construction of social housing for middle-class families through a public and public-private investment model.
Financial incentives could be established for property developers, such as reducing the tax burden, offering loans with subsidised interest rates, and providing direct subsidies. Additionally, public-private partnerships could be formed to enhance investment in affordable housing construction, ensuring a greater supply volume and promoting a sustainable balance in the real estate market. Although the Portuguese tax system already includes some incentives, these remain insufficient in light of the current demands of reality, he concludes.
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