Portugal approves new housing measures

Portugal is advancing a new housing package aimed at expanding supply, lowering the tax burden on affordable construction and making rental investment more attractive. The key measures have already been approved by the government and, in part, by parliament, with the core package built around reduced VAT, tax relief for rental housing, licensing simplification and higher IMT for non-resident buyers.

What housing measures Portugal has approved

Portugal’s Council of Ministers approved a set of housing decisions under the Construir Portugal program. The government said VAT would be cut to 6% for the construction of homes for sale up to €648,000 and, in the case of rental housing, for rents up to €2,300 a month. The regime will remain in force until 2029. At the same time, ministers approved a higher IMT on home purchases by non-residents, excluding Portuguese emigrants, and waived the AIMI surcharge for homes rented out for up to €2,300 a month.

The package also includes higher IRS deductions for tenants, rising to €900 in 2026 and €1,000 in 2027. For landlords charging moderate rents, the government cut the autonomous IRS rate from 25% to 10%, part of a broader effort to make long-term renting more attractive and predictable.

What parliament has already passed

Part of the fiscal package has already cleared parliament. According to the government, lawmakers on January 9 approved the VAT cut from 23% to 6% for the construction and rehabilitation of housing where the sale price does not exceed €648,000 or the monthly rent does not exceed €2,300. Parliament also approved higher IRS deductions for tenants, exemptions from IRS and IRC for moderate-rent contracts, defined as rents 20% below the municipality median, and capital-gains tax relief where proceeds are reinvested in housing for moderate rents within five years.

Lawmakers also approved the creation of a new Contratos de Investimento para Arrendamento, or CIA, regime. That framework grants tax advantages to investors who build, refurbish or acquire real estate for rental use with terms of up to 25 years. In effect, Lisbon is trying to create a longer and more stable horizon for institutional and private capital in the rental segment.

How Portugal is reshaping the rental and construction market

The package combines tax incentives with administrative deregulation. Prime Minister Luís Montenegro had already announced shorter deadlines and streamlined procedures under the legal regime for urbanization and building, known as RJUE. That matters because the government explicitly links the housing crisis not only to high prices, but also to licensing delays, financing costs and weak rates of new supply coming to market.

The government has also stressed that these measures are meant to work alongside European financing and a broader supply-side push. Under an agreement with the European Investment Bank, Portugal secured a €1.34 billion credit line to expand the public housing stock through the construction and renovation of around 12,000 controlled-rent homes. The first tranche amounted to €450 million.

Why Portugal is both encouraging development and taxing non-resident demand

Portugal’s latest housing policy reflects a dual-track strategy. On one hand, it is reducing the tax burden on construction, moderate rents and long-term housing investment. On the other, it is increasing IMT on home purchases by non-residents, clearly seeking to curb some additional pressure from external demand. The government’s summary did not spell out the new IMT rate in the short announcement, but the principle of higher transfer tax for non-resident buyers is explicitly confirmed.

That balance suggests Lisbon is not abandoning investment appeal, but rather redirecting incentives toward projects that add to effective housing supply, especially in the affordable and moderate-rent segments. A further signal came from the prime minister’s pledge that “the rules will not change halfway through the game,” reflecting the government’s view that uncertainty had previously weakened investment in housing.

How large the housing gap remains

Portuguese authorities openly acknowledge that current construction volumes and public schemes are not enough. In an official government release on the EIB-backed financing, Portugal said the 26,000 homes planned under the RRF would not fully meet demand, while applications under the 1.º Direito program stand at around 59,000, with completion to be ensured by 2030 through state budget allocations.

That means the current package should not be seen as a one-off reform. It is better understood as part of a broader model in which tax relief, infrastructure finance, licensing simplification and selective pressure on non-resident demand are meant to work together to narrow the supply gap in Portugal’s housing market.

As International Investment experts report, Portugal’s new measures signal a shift from crisis rhetoric toward a more operational housing model built around construction incentives, long-term rental supply and regulatory predictability for capital. For investors, the takeaway is that the market remains open, but the clearest advantages are now being directed toward strategies that expand affordable supply rather than simply ride price growth.

FAQ on Portugal’s new housing measures

What new housing measures has Portugal approved?

Portugal has approved a package including a reduced 6% VAT rate on parts of housing construction and rehabilitation, higher rent-related tax deductions, tax relief for moderate rents, capital-gains exemptions in certain reinvestment cases, a new CIA investment regime and licensing simplification.

What counts as a moderate rent under the new rules?

The government defines it as a rent around 20% below the median in the relevant municipality. Special tax benefits are attached to that category.

How much will tenant tax deductions rise?

The IRS deduction ceiling for tenants rises to €900 in 2026 and to €1,000 in 2027.

How did Portugal change VAT on housing construction?

VAT falls from 23% to 6% for certain housing construction and rehabilitation projects where the sale price does not exceed €648,000 or the rent does not exceed €2,300 per month.

What is Portugal doing to increase housing supply?

Beyond tax changes, Portugal is using a €1.34 billion EIB credit line to build and renovate around 12,000 controlled-rent homes and is also simplifying licensing procedures.