Portugal Unveils €2.5 Billion State Guarantee to Back Construction of 120,000 Municipal Homes
As a cornerstone of its new national housing strategy, the Portuguese government has announced a €2.5 billion guarantee facility to be issued by the state-owned promotional bank, Banco Português de Fomento (BPF). This measure is designed to help municipalities finance the construction of up to 120,000 homes outlined in their respective local housing strategies. This program will run in parallel with, and as a supplement to, the recently signed €1.34 billion financing agreement with the European Investment Bank (EIB).
The BPF will provide guarantees covering 90% of the total investment value of housing projects undertaken by municipalities. Gonçalo Regalado, CEO of the BPF, explained the structure to the business newspaper ECO, stating, “We will create 90% portfolio guarantees with a 5% cap rate.” This means that while the state guarantees the vast majority of the loan, its maximum loss exposure is capped at 5% of the portfolio value, or €125 million. Regalado noted that the risk of default at the municipal level is considered “very residual,” allowing for a significant multiplication of public funds.
Under this framework, commercial banks will be responsible for selecting the municipal projects they wish to finance, backed by the state guarantee. This is expected to result in highly competitive financing terms for the municipalities, effectively enabling them to secure 100% funding for their projects. A series of protocols between the BPF and Portugal’s leading commercial banks are set to be signed immediately to activate the credit line.
This initial guarantee line is focused on direct municipal development. However, the government has a broader scope in mind. By November or December, the BPF plans to launch additional credit lines specifically designed to support public-private partnerships (PPPs) aimed at expanding the rental market. Two distinct PPP models are under consideration. In the first, a private entity would construct on public land, with management of the properties potentially remaining with the state or being outsourced to the private partner. This model is seen as more probable in large cities like Lisbon and Porto, which have the administrative capacity for public management.
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In smaller municipalities, a mixed-management solution is considered more likely. The credit lines for these PPPs will be structured differently, with a lower guarantee percentage but a higher cap rate for public loss. Regalado explained this is because the loans will be made directly to private promoters or constructors, which carry a higher risk profile than municipalities. This tailored approach is intended to make banks more competitive while still providing the necessary security to unlock private investment.
This new financial instrument builds on the experience of previous programs like IFRRU 2020, which supported urban rehabilitation. The government's strategy signals a clear intent to use sophisticated financial tools to address the housing supply deficit from multiple angles, encouraging participation from municipalities, private developers, and the banking sector alike.
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