CONVERSION OF COMMERCIAL PROPERTIES TO RESIDENTIAL

Portugal is facing a severe housing crisis, whose main causes are the lack of supply relative to demand; high house prices at a time of declining purchasing power; the escalation of inflation and rising interest rates. The response to this challenge has led to several solutions, one of which is the conversion of properties used for services/commerce into housing.

The conversion of shops, warehouses and offices into houses - particularly to combat the supply problem in the residential market - has become an international trend, which investors operating in Portugal have followed. There are several factors that explain this propensity:

• Severe stock problem in the national residential market, with little supply, housing prices keep rising and the purchase of this type of property is, from the outset, cheaper.

• Increase in empty shops and warehouses due to the rise of e-commerce.

• Remote work or a hybrid model have left many offices vacant.

The approval of the Simplex has facilitated the conversion of commercial properties into residential properties, in order to increase the supply of houses in the market.

The legal regime of horizontal property was modified and, according to Decree-Law No. 10/2024, of January 8, the Co-owners' Assembly does not have to be consulted on this matter.

However, there are two basic rules to consider regarding the conversion of offices/shops into housing:

• The City Council must be consulted beforehand and verify, after the works are completed, whether the necessary habitability conditions exist.

• If the works require aesthetic or architectural changes to the common parts of the building, approval by the condominium will be mandatory.

This new decree promotes housing while simplifying administrative acts. Until now, authorization from the Co-owners' Assembly was required - and unanimously. But, with this decree-law, any non-residential unit can be altered for residential use without the need to ask for authorization from the co-owners. This applies to all types of non-residential units, provided they present habitability conditions.

The reconversion of commercial and service properties to housing has advantages and disadvantages. Find out about them.

Advantages:

• Specificity and unique characteristics of the buildings, resulting in high aesthetic value and unusual pieces.
• Liquidity of the residential market. The structural imbalance between demand and supply in the residential market continues to be felt, which guarantees a relatively quick turnover of projects.
• Lower price than residential properties, and the fact that it is possible to convert the space to the buyer's taste and preference.
• Increase in housing supply alternatives in the real estate market.
• Offer of a differentiated product, with special characteristics (larger openings, wider areas) and with the potential for a more contemporary and modern look.
• The advantage for cities is the adoption of a strategy that will allow the rehabilitation of unoccupied built structures, for example in areas that are still in the consolidation phase.

Disadvantages:

• Challenges specific to the rehabilitation of an existing building with a view to changing its use: higher construction costs and high volatility, which is felt more in major urban centers.

• Costs of adapting networks and creating infrastructure suitable for housing.

Investment Opportunity Here!

Article by Isabel Meireles by Leilosoc dated February 20, 2024.