Government Approves 6% VAT for Construction Amid Warnings of Potential Price Hikes
The Portuguese Council of Ministers has approved a set of new measures aimed at the housing sector, featuring a reduction in the Value Added Tax (VAT) on new construction for affordable rentals to a rate of 6%. Following the announcement, representatives from the real estate industry and market specialists have expressed a mix of optimism and concern, acknowledging the policy could stimulate rental supply while simultaneously warning that it might trigger an increase in overall housing prices.
The government's policy objective is to increase the availability of homes for rent by making development more financially attractive. The real estate sector has viewed the tax reduction as a positive step. However, in statements to the press, several experts have raised doubts about the effective scope of the measures, pointing out that many details remain undefined. There is a shared concern that the established price ceilings for the program are too high and could lead to market distortions.
A central point of the debate is the maximum property value set by the government to qualify for the 6% VAT rate, which has been established at €648,000. According to market data, only 10% of homes sold in mainland Portugal last year were priced above this threshold. Experts agree that this high ceiling, combined with a generous limit for what is defined as 'moderate rent,' could create an incentive for developers to raise prices on properties to align with the upper limit of the benefit, rather than promoting widespread affordability.
The primary concern is that the policy may inadvertently cause prices to soar in the mainstream market, as developers capitalize on the tax benefit for properties at the higher end of the 'affordable' spectrum. This could undermine the government's goal of easing the housing crisis for low and middle-income residents. The real estate sector, while hopeful for a boost in construction, remains cautious about the potential for market inflation.
Need Expert Guidance?
Get personalized insights from verified real estate professionals, lawyers, architects, and more.
In the aftermath of the government's announcement, there is a consensus among industry stakeholders that further clarification is needed on the precise mechanics of the new rules. The final impact of the VAT reduction will depend on how the policy is implemented and whether it successfully channels investment towards the creation of genuinely affordable rental housing across the country.
The government is expected to release further details on the regulatory framework in the coming weeks. The response from developers and the subsequent movement in property prices will be closely monitored to assess the real-world consequences of this significant fiscal intervention in the housing market.
Understand policy impacts on your Portugal property plans at realestate-lisbon.com.