Lisbon & Porto Real Estate: How New Tax Incentives Impact Property Prices and Rents for Investors

Lisbon & Porto Real Estate: How New Tax Incentives Impact Property Prices and Rents for Investors

The Portuguese government has officially announced a series of fiscal measures aimed at the housing sector, with data suggesting that the key markets of Lisbon and Porto are positioned to be primary beneficiaries. The announcement, which includes a significant reduction in the Value Added Tax (VAT) for construction and lower income tax rates for rental properties, is expected to influence property prices and rental dynamics across the country’s two largest cities. The core of the new policy is a reduction of the VAT rate on new construction from the standard 23% to a reduced rate of 6%. This benefit is applicable to residential properties with a final sale price not exceeding €648,000. Market analysis indicates this price ceiling makes the measure widely applicable in both Lisbon and Porto, though it strategically excludes the most expensive prime districts.

Recent market data from Confidencial Imobiliário’s SIR (Sistema de Informação Residencial) provides a detailed picture of the potential impact. Over the past 12 months, the median sale price for a two-bedroom (T2) apartment in Lisbon was recorded at €642,099. This figure sits just below the government's threshold, suggesting that approximately half of the new housing transactions in the capital could qualify for the lower tax rate. In Porto, the policy’s reach is even broader. The median price for a new T2 apartment in Porto was €324,900, and data shows that the 95th percentile for such properties is €567,000, meaning the vast majority of the city's new housing stock falls comfortably within the incentive's parameters. The measure also extends to the wider metropolitan areas, where median T2 prices in Greater Lisbon and Greater Porto were €405,000 and €285,300, respectively.

The government's policy appears to be a targeted effort to stimulate the supply of mid-range housing while avoiding further inflation in the luxury segment. Geographies with a high concentration of international buyers and high-end developments, such as Lisbon’s Santo António and Parque das Nações parishes or the coastal areas of Cascais and Estoril, will largely be unaffected, as property values there consistently surpass the €648,000 cap. This exclusion has been interpreted by market analysts as a deliberate move to focus the benefits on housing intended for the domestic market and moderately-priced investment.

Ricardo Guimarães, director at the real estate data firm Confidencial Imobiliário, provided commentary on the statistical trends. He stated that “the VAT reduction seems to have been designed to exclude from this benefit the markets with a greater vocation for the high-end and international demand, that is, the clearly ‘non-moderate’ ones.” He added, “the fact that it covers almost the totality of the remaining market makes it a measure that, de facto, can have visible effects, being of esperar that it contributes to the reduction of prices.” Guimarães also noted that for a more significant impact on affordability, these tax measures would need to be paired with reforms addressing construction regulations and the high cost of land, calling the VAT reduction a “necessary, but not necessarily sufficient” condition.

In parallel with the construction incentive, the government has also introduced measures for the rental market. Landlords can now benefit from a reduced IRS (personal income tax) rate of 10%, down from 25%, on rental income from contracts where the monthly rent does not exceed €2,300. With median T2 rents in Lisbon at €1,400 and in Porto at €1,200, this tax relief is expected to cover a substantial portion of the rental landscape. The objective is to increase the supply of affordable rental housing by making it more financially attractive for property owners to rent out their homes at moderate price points. The market will be closely watched in the coming months to assess the real-world impact of these fiscal changes on supply, demand, and pricing. Stay informed on Lisbon property market developments at realestate-lisbon.com.