Impact of 6% VAT on Housing Construction: Effects Only to be Felt from 2027
The Portuguese government's proposal to reduce the VAT rate on housing construction from 23% to 6% is a highly relevant measure, but its most significant effects are only expected to be felt from 2027. This estimate was put forward by the Minister of Finance, Joaquim Miranda Sarmento, during a hearing on the State Budget proposal for 2026. The minister emphasized the gradual nature of this measure, explaining that construction projects require time for approval and the start of works.
The application of 6% VAT is intended for \"\"new projects submitted to the city councils,\"\" with its entry into force planned for 2026. However, the reflection in the market will not be immediate. \"\"The major effect will begin to be felt in 2027, due to this `delay` [deferment] that exists between the presentation of projects, their approval, and the start of works,\"\" referred Miranda Sarmento. This time window is crucial for understanding the real impact of the measure on the sector.
Luís Montenegro, Prime Minister, announced on September 25 that the Government will propose this VAT rate reduction to Parliament. The measure will apply to the construction of housing for sale up to 648,000 euros or for rent with rents up to 2,300 euros. This tax regime, according to the head of the Executive, will be in force until 2029. Montenegro argued that the 2,300 euros rent limit, although it may seem high, was designed as a \"\"maximum ceiling\"\" to cover families in the areas of greatest housing pressure, namely the Metropolitan Area of Lisbon and that of Porto.
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It is important to note that the bill for the VAT reduction has not yet been formally submitted to Parliament and is not included in the State Budget for 2026 initiative. This fact indicates that, despite the governmental intention, the legislative process is still ongoing and may undergo changes. The measure aims to stimulate the construction sector and increase the housing supply, especially in high-demand urban centers, contributing to market stabilization in the medium and long term.
The VAT reduction on construction is one of several government initiatives to respond to the housing crisis in Portugal. Its implementation and subsequent effects on the final cost of housing and on rents will be closely monitored, with the aim of evaluating its effectiveness in promoting a more accessible and dynamic market.
For a detailed analysis of government policies affecting the real estate market, visit our Regulation and Legal Frameworks section. If you are planning a construction project in Portugal, our Constructors and Architects can offer you the necessary expertise. Stay updated on Construction Update News for the latest from the sector.