Government Unveils 'Shock Policy' with Tax Cuts to Tackle Portugal's Housing Crisis
The Portuguese government has announced a new package of measures described as a “shock policy” intended to address the country's escalating housing crisis, which has seen property prices jump by 17.2% in the second quarter year-over-year. The new strategy pivots towards incentivizing private supply, introducing significant tax benefits for construction and the rental market, particularly in high-pressure urban centers like Lisbon. The problem of housing access, officials admit, is expected to worsen before it improves, creating a critical challenge to social cohesion alongside the ongoing strains in the national health service.
At the core of the new plan is the replacement of the largely unsuccessful “affordable rent” program with a new “moderate rent” framework. Under this initiative, landlords will benefit from a steep reduction in the IRS income tax rate on rental income, from the standard 25% down to 10%. This benefit is contingent on the monthly rent not exceeding a ceiling of €2,300 and the contract having a minimum duration of three years. Miguel Pinto Luz, the Minister of Infrastructure and Housing, stated that this threshold is designed to accommodate families in expensive markets, citing the example of a family with three children seeking housing in Lisbon. The government projects that this measure alone could bring an estimated 45,000 properties into the long-term rental market.
To further stimulate the market, the package includes a significant incentive for property owners by offering a complete exemption on capital gains taxes if the proceeds from a property sale are reinvested into another property that is then placed into the “moderate rent” system. This is intended to encourage the circulation of capital within the rental sector, moving assets toward long-term housing solutions. The policy also targets the high costs of new construction by proposing a reduced Value Added Tax (VAT) rate of 6%. This lower tax will apply to the construction of new properties intended for sale with a price cap of €648,000, as well as to properties built or renovated for the rental market under the €2,300 monthly limit. These measures are accompanied by promises to simplify and streamline bureaucratic processes for licensing and construction.
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While the government is promoting the package as a robust response, it faces considerable obstacles. The real estate sector's confidence has been historically undermined by legislative volatility, a problem not aided by the fact that these new measures are explicitly temporary, set to expire at the end of the current government's term. This creates uncertainty for long-term investment decisions. A more immediate challenge is the need for parliamentary approval. As the governing coalition does not hold an absolute majority, passing these fiscal measures is not guaranteed. Key proposals, such as the 6% VAT for construction, have failed to gain sufficient parliamentary support in the past. Prime Minister Luís Montenegro has expressed confidence that the opposition will not block the measures, but their passage remains uncertain until a formal vote is held.
The government is also introducing a measure to cool demand from abroad by increasing the IMT (Property Transfer Tax) for non-resident buyers, with the exception of emigrants. While non-resident purchases account for a relatively small and decreasing share of the market, at 4.9% in the second quarter, officials believe this tax adjustment could help temper price inflation. The combination of these supply-side incentives and demand-side deterrents reflects a complex strategy to rebalance a market under severe strain. However, experts caution that the true impact of these policies will take years to materialize, as both building new homes and restoring market confidence are long-term endeavors.
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