Portuguese Government Proposes Sweeping Tax Reforms to Tackle Housing Crisis
The Portuguese government has announced a proposed law aimed at stimulating the housing market through a series of significant tax incentives. The policy, announced by Prime Minister Luís Montenegro following a Council of Ministers meeting on September 26, is designed to increase the supply of housing at 'moderate prices' for both sale and rent, with a particular focus on easing pressure in the metropolitan areas of Lisbon and Porto.
The central objective of the new policy is to lower the cost of construction and renovation to encourage private developers to build more homes for the middle class. The government's strategy targets both the supply and demand sides of the market, introducing tax cuts for developers, landlords, and tenants, while also taking steps to curb speculative purchasing by certain foreign buyers.
The implementation strategy for this policy will be a temporary regime, set to be in effect until 2029. The government will introduce a legislative proposal to Parliament for approval. The measures include a drastic cut in the Value Added Tax (VAT) for construction and rehabilitation of housing from the standard 23% to a reduced rate of 6%. This applies to homes sold for up to €648,000 or rented for up to €2,300 per month.
The policy will directly affect developers, who will see a significant reduction in their tax burden, and landlords, who will benefit from a lower income tax rate on rental income. Tenants will also see relief, with an increase in the allowable IRS deduction for rental expenses. The measures are expected to have the greatest impact on the middle-class population in high-density urban areas.
The budget for these tax incentives will be covered by the state budget, with the government anticipating that the stimulus to the construction sector and the broader economy will offset the reduction in tax revenue. The government has not yet released a detailed fiscal impact assessment, but the move is seen as a core part of its economic strategy.
Stakeholder consultation is ongoing, but initial reactions from construction and real estate industry associations have been largely positive, as they have long advocated for a VAT reduction. Political support will be debated in the Assembly of the Republic, where the government will need to secure a majority to pass the law. The temporary nature of the regime until 2029 is a key feature, allowing for future review.
Need Expert Guidance?
Get personalized insights from verified real estate professionals, lawyers, architects, and more.
The expected economic impact is a significant increase in construction activity, leading to job creation and economic growth. Socially, the government hopes the policy will make housing more affordable and accessible, reducing the housing deficit. The measure aims to create thousands of new homes at prices more aligned with the purchasing power of the local population.
The government will establish monitoring and evaluation frameworks to track the policy's effectiveness. Key performance indicators will include the number of new homes built under the scheme, the impact on property prices and rents, and the overall increase in housing supply. The policy will be reviewed before its scheduled expiration in 2029.
Internationally, this type of tax incentive for housing construction has been used in other European countries facing similar affordability challenges. The Portuguese government has likely studied these models to inform its own policy design, aiming to replicate successes while avoiding potential pitfalls such as overheating the market.
Political opposition may arise concerning the specific price ceilings and the potential for the benefits to be captured primarily by developers rather than passed on to consumers. Debates are also expected around the increased IMT for non-residents and its potential impact on foreign investment flows into the country.
This legislative package is part of a broader future policy agenda. The Minister of Housing, Miguel Pinto Luz, indicated that further reforms are planned for the urban rental law (NRAU), regulations for real estate mediation, and the development of new credit products in partnership with the Portuguese Banking Association to facilitate financing for both construction and home purchases.
Understand how these significant policy impacts can affect your Portugal property plans by seeking expert guidance at realestate-lisbon.com.