Portugal's Bold Housing Overhaul: Slashes VAT on Construction, Scraps 'Affordable Rent' for New 'Moderate Rent' Up to €2300

Government Approves New Housing Measures

The Portuguese government has approved a comprehensive set of measures aimed at addressing the housing crisis, confirming earlier announcements by Prime Minister Luís Montenegro. Most of these measures are fiscal in nature and still require approval by the Assembly of the Republic, but they also include significant changes to the rental sector, such as eliminating the concept of 'affordable rent' and replacing it with 'moderate rent', which will have a cap of €2300 per month. Additionally, the package involves simplifications in licensing processes to speed up construction.

Key Fiscal Incentives for Construction

A major highlight is the introduction of a reduced VAT rate of 6% for housing construction projects. This incentive applies to homes that are sold for a maximum of €648,000 or rented with monthly rents not exceeding €2300. Prime Minister Montenegro emphasized that this rate is designed to cover the majority of the country, including high-pressure areas like Lisbon and Porto, under the new concept of 'access to housing at moderate prices'.

During a press conference held on Thursday, Montenegro acknowledged that the €2300 limit might seem high but justified it as necessary for metropolitan areas where rental prices often exceed this amount. However, details on regional variations or municipal differences remain unclear, and the presentation did not allow for questions from journalists.

Support for Landlords and Tenants

The measures also include tax incentives for landlords, such as a reduction in the IRS (income tax) rate on rental income when 'moderate values' are charged. For tenants, there is an increase in the IRS deduction for rental expenses, rising to a maximum of €900 in the next year and €1000 by 2027, but only for those paying 'moderate rents'.

Changes to Rental Concepts

Infrastructure and Housing Minister Miguel Pinto Luz announced the abolition of the 'affordable rent' concept in favor of 'moderate rent', aiming to promote housing for the middle class, which he described as often overlooked. He clarified that the supported rental regime for publicly owned homes will continue and be encouraged, though further specifics on the new moderate rent concept were not provided.

Legislative Hurdles Ahead

As these are fiscal measures, their implementation depends on parliamentary approval, which is uncertain since the governing coalition lacks a majority. This adds a layer of complexity to the rollout of these initiatives.