Portuguese Government Announces New Housing Policy Package Focused on Tax Incentives
The Portuguese government has officially announced a new strategic initiative aimed at addressing the nation’s housing crisis, centered on a package of four key fiscal measures. This policy, introduced by the administration of Prime Minister Luís Montenegro, requires parliamentary approval and aims to stimulate both the rental and construction markets through significant tax reductions. The stated objectives of the policy are to increase the availability of affordable housing and ease the financial burden on tenants, although the detailed legislative text is still pending.
The first pillar of the new policy is a substantial cut in the flat income tax rate (IRS) for landlords, reducing it from 25% to 10%. This benefit is targeted at properties leased under a newly defined 'moderate rent' scheme, applicable to monthly rents not exceeding €2,300. This measure is intended to encourage more property owners to enter the long-term rental market. The second major component is the implementation of a reduced Value Added Tax (VAT) rate of 6% for the construction of new homes, applicable to properties with a final value up to €648,000, a move designed to lower development costs.
The government’s plan also includes direct financial relief for tenants by increasing the annual tax-deductible amount for rental expenses in their IRS filings. This deduction is set to rise to €900 in 2026 and will further increase to €1,000 in 2027. The fourth measure introduces a capital gains tax exemption for property owners who sell a property and reinvest the entire proceeds into another property that is subsequently placed on the moderate rent market. In a related move, the property transfer tax (IMT) for non-resident buyers will be increased, though specifics have not yet been detailed.
This policy package represents the second major housing initiative from the Montenegro government. The implementation timeline for these measures is contingent on their passage through Parliament. The government’s rationale is that this multi-pronged fiscal approach will create a more favorable environment for both increasing the housing stock and making existing rental options more affordable for the middle class. The policy aims to balance incentives for supply with direct support for demand.
However, there is considerable debate among economists and market analysts regarding the potential impact of these measures. A primary concern is that in a supply-constrained market like Portugal's, tax benefits granted to suppliers (landlords and developers) may not be passed on to consumers in the form of lower prices. Instead, these benefits could be absorbed as higher profit margins. Past fiscal incentives, such as the IMT exemption for young buyers, have been correlated with sharp increases in housing prices, suggesting that stimulating demand without a corresponding surge in supply can be inflationary.
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The new 10% flat tax for landlords also alters the existing rental tax framework, which was designed by the previous government to incentivize long-term leases by offering progressively lower tax rates for longer contract durations. The new, simpler regime may prove more attractive for landlords who prefer the flexibility of shorter-term contracts, potentially impacting tenant stability. The government expects this might also draw some properties from the short-term tourist rental (Alojamento Local) market back into the long-term rental pool.
Stakeholder consultation will be a critical next step as the legislative proposals are debated. Real estate industry bodies have cautiously welcomed the direction of the measures but have also called for deeper structural reforms. These include streamlining the notoriously slow and complex municipal licensing processes for new construction, which many argue is a more significant barrier to increasing supply than the VAT rate. There are also calls for legal reforms to the urban rental laws to provide landlords with greater security and faster resolution in cases of tenant default.
The government has promised further legislative action, including a revision of the urban rental laws, by the end of the year. The monitoring and evaluation framework for the currently announced measures will be crucial to assess their effectiveness. The success of this policy will be measured by its ability to demonstrably increase the housing supply and moderate price growth over the medium term, a challenge that has proven difficult for successive governments to overcome.
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