Portugal rolls out 6% VAT on mid‑market builds, landlord tax breaks and public guarantees for 100% mortgages for under‑35s — but prices and rents keep rising.
Portugal is rolling out a multi-pronged package of tax incentives, VAT reductions and loan guarantees designed to put more affordable homes on the market — but authorities warn there is no single fix that will drive prices down overnight.
Under the 2026 State Budget and related measures, Lisbon has introduced a 6% VAT rate for new builds aimed at the “renda moderada” (mid‑market) segment, a landlord income‑tax cut for rents kept below €2,300, and an expanded public guarantee scheme that lets qualifying first‑time buyers under 35 access 100% loan‑to‑value mortgages. The government says the measures are part of a push to deliver 59,000 additional dwellings by 2030, with roughly half the funding coming from the EU‑backed Recovery Plan.
At a glance
• 6% VAT on new builds targeted at renda moderada
• IRS cut to 10% for landlords who cap rents at €2,300 or less
• €350 million in state guarantees to enable 100% mortgages for under‑35s (scheme now part of a €1.55 billion envelope)
• Fast‑track licensing and a public land registry (SIGPIP) due by June 2026
• Target: 59,000 new homes by 2030; 26,000 to be delivered under the 1.º Direito programme by June 2026Why the crunch persists
Despite owning one of Europe’s largest housing stocks per capita, Portugal faces structural supply distortions: vacant second homes, a surge in short‑term rentals and a stock of ageing buildings in need of refurbishment. Official data show sale prices rose about 17% year‑on‑year through mid‑2025 while median wages climbed roughly 5%, widening the affordability gap. Construction is also constrained: municipalities average 18 months to approve permits and the sector reports a shortage of skilled labour.
What’s in the 2026 toolkit
The new measures aim to nudge private developers and landlords toward mid‑market supply and to make home purchase easier for younger buyers:
• Reduced VAT applies to homes sold under €648,000 or rented for less than €2,300, intended to lower development costs for mid‑market units.
• Landlords who sign leases of at least three years can receive a 15‑percentage‑point IRS discount and a capital‑gains tax exemption if they reinvest in affordable rental stock.
• The public guarantee programme, expanded to €1.55 billion, absorbs 15% of lender risk so banks can offer 100% mortgages to eligible first‑time buyers under 35.
• Rent‑related relief: deductible rent ceilings rise to €900 in 2026 and €1,000 in 2027; some landlords may apply cumulative rent updates up to 11%, though most contracts face a 2.24% cap.Will it be enough?
Developers welcome the VAT cut but caution that construction costs — for steel, cement and labour — remain roughly 25% above pre‑pandemic levels. Industry groups estimate an additional 12,000 workers are needed to hit 2026 output targets; relaxed immigration rules help, but bureaucratic hurdles still slow project starts.
Pushback from tenant groups and economists is immediate. Tenant association AIL calls the €2,300 threshold for renda moderada “out of touch” with average salaries near €1,500 and warns tax perks could simply inflate speculative returns instead of lowering rents. The OECD has urged stronger measures on empty homes and a significant increase in direct social‑housing investment — Portugal currently spends just 0.1% of GDP on social housing, far below the OECD average.
Market snapshot
• Median sale price Q3 2025: €2,065/m²
• Housing price index: +17.7% YoY
• Transactions 2024: 156,325 homes (+14.5%)
• Latest rent (INE Q1 2025): €8.22/m² (+10%)What to watch next
Key deliverables will test whether the policy package can shift market dynamics: rollout of the SIGPIP public land database and the delivery of 26,000 homes under 1.º Direito by June 2026; the first tenders and projects using the 6% VAT rule; and whether development costs begin to fall. If construction prices and permit times remain high, Lisbon’s own caution will be borne out — there is likely no silver bullet, only a long road of incremental reforms.
