Funchal City Council Suspends New Short-Term Rental Licenses for Six Months
The Funchal municipal government has approved a temporary suspension on the issuance of new licenses for Alojamento Local (AL), or short-term rentals, within residential buildings. The moratorium, which will be in effect for a maximum period of six months, was passed by the Funchal City Council and subsequently ratified by the Municipal Assembly. This decision follows the discovery of irregularities involving a local housing cooperative that benefited from public support.
The suspension is a direct consequence of an investigation into the Cortel housing cooperative. An independent commission found that the cooperative had engaged in several illegal practices related to its "Residências Cortel I" development, a project intended to provide cost-controlled housing. The inquiry was initiated after opposition councilors from the Confiança coalition publicly denounced on July 26 that three apartments within the publicly supported building were being used for tourist rentals under the AL regime.
Following the investigation's findings, the Funchal City Council, led by Mayor Cristina Pedra of the PSD/CDS-PP coalition, has also begun the process of revoking municipal tax benefits totaling €60,700 that had been granted to the Cortel cooperative. The mayor confirmed that the case documentation, outlining the legal breaches, will be forwarded to the Public Prosecutor's Office, the regional Tax Authority, the public housing entity Investimentos Habitacionais da Madeira, and the national Institute of Housing and Urban Rehabilitation (IHRU).
The commission's report identified several "questionable" actions by the cooperative that could potentially constitute criminal offenses. These include the failure to finalize the building's certification as Controlled Cost Housing (HCC), the sale of units without the proper registration of legal encumbrances, the sale of multiple units to a single cooperator, and the resale of properties without respecting the cooperative's legal right of first refusal.
Mayor Pedra addressed the press after a council meeting, stating that the tax benefits were initially granted because "all the documentation was correct at the time of attribution." She rejected accusations of inadequate oversight from the municipality, emphasizing that the support was approved unanimously by the council. The mayor asserted that if the council were to review the decision with the same information, it would "do everything the same."
The six-month suspension of new AL licenses is intended to give the municipality time to conduct a thorough assessment of the current landscape and develop a comprehensive regulatory framework for the short-term rental sector. The goal is to prevent future misuse of housing incentives and to better balance the growth of tourism with the housing needs of the local population. This measure will apply to all new applications for AL licenses in collective housing units throughout the city of Funchal.
The decision in Funchal reflects a broader trend across Portugal's major tourist destinations, where municipal governments are increasingly seeking to implement stricter controls on the proliferation of short-term rentals. The issue has become a central point of public and political debate, with concerns mounting over the impact of AL on the availability and affordability of long-term housing for residents. The regulatory developments in Funchal over the next six months will be closely observed by property owners and investors in Madeira and beyond.
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