Coronavirus: why conventional rental is not the solution?

With the new pandemic affecting the entire world, businesses and the population at large have needed to reinvent themselves to overcome this crisis in the best way possible. The market is completely unstable and we still do not know when all this will be completely over. And with so many uncertainties, many people wind up making hasty decisions.

When we talk about local accommodation, tourism and Coronavirus, questions keep coming up. What will be the future of tourism? Is it better to migrate from local accommodation to conventional rental? What should be done? Although nothing is clear yet, we can bet that this crisis will be overcome and tourism will gradually return.

For those who have an apartment and are in doubt as to whether or not they should continue to do local accommodation, we’ve separated four aspects that are important to be assessed before making a decision. Take a look:

1- AL License

To work with conventional leases it is necessary to cancel, and lose, the AL license. What does it mean? Once you lose it, and if your property is in a contention area, your apartment can no longer be used for touristic purposes. Therefore, going back may be an impossible task given the inconsistency of the legislation that limits the issuing of new permits.

2- Drop in (conventional) rental prices

With the local accommodations unoccupied, many owners have opted to do conventional rental agreements. And, with this, the market was invaded by several options of fantastic apartments, furnished and equipped, at values that cannot counterbalance the fixed expenses and high tax rate of this modality. Result: those very high prices practiced until then have plummeted and the offer at this moment is much bigger than the search for a property.

3- From a fiscal point of view

The tax burden of a conventional lease is much higher than that of a local accommodation. The revenue from a long-term rental is fixed, which can be a positive point. But it is important to analyse whether low prices and high taxes pay off. 

In AL, owners of houses and apartments covered by the simplified scheme, i.e. with a turnover of up to EUR 200,000 per year and without organised accounting, pay about 25% tax on 35% of income for uncontained areas and 50% for contained ones. The remaining 65 or 50% are considered necessary costs for the exercise of the activity.

The traditional lease, on the other hand, is subject to the payment of a tax on the rents received, which corresponds to 28% on (natural person) or 25% (legal person) on 100% of the annual income. That’s 8.75% for a normal AL, and 28% for rentals!

4- Legislation

Although the market risk of a traditional lease is much lower, current legislation is increasingly pro-lessee, leaving owners with less collateral. If, for example, the tenant does not pay, the eviction process takes a long time, and can exceed 6 months. Not to mention that some small alterations can be made to the apartment – all covered by the law – besides having to make and honour a contract with a longer duration.

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Therefore, it is very important to analyse if it is really worth changing segments because of Coronavirus. The market is down, but good properties will always have a public and can benefit from this break. We must remember that in 2018 there were less tourists but more revenue per apartment due to less competition! With many apartments moving into conventional rental, the offer will be lower again. So, if the proposal is to continue working with local accommodation, bet on making some improvements to your apartment, try to install digital entrances (guests love it!) and take advantage of this moment to organize everything that was left outstanding.

And, to combat this crisis, a new way of working with local accommodation has been created: the medium/long term contract that covers a local public looking for excellent apartments, furnished and ready to live for a specific time and shorter than in traditional rental. In a next text, we will explain the characteristics, advantages and disadvantages of this new modality.