Municipal Development Tax (MDT) in the Lisbon Metropolitan Area (LMA) - How Does it Relate to the Real Estate Market?

Joao Manuel Carvalho

ERES from European Real Estate Society (ERES)

Abstract: Municipal Development Tax (MDT) has been important in funding municipalitiesí activities. Though initially conceived to anticipate possible negative development externalities, its role in the last 10 to 15 years has been to capture another slice of the foreseen developersí value added. MDT is mostly referred to the physical features and costs of the envisaged development. As the business margins of real estate development undergo a very significant compression, MDF that is calculated on physical grounds and costs and not on real estate value grounds may dissuade developers to act and therefore substantially reduce municipal funding. An overview of MDF across the municipalities of the LMA provides some interesting information on MDF rationales as far as the real estate market is concerned. For this purpose we define MDF and segment the universe of developments for comparison effects, giving a primordial role to real estate developments on previous urban land (as the latter is associated to the widely consensual strategic aim of confining urban sprawl and re-using the existent city). The survey shows that municipalities do not take into account real estate expectations as far as the rationale for MDT is concerned. That points at the need for a deeper real estate culture in municipal governance.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2011-01-01
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