The new “shock plan” by Montenegro’s Government to try to solve the housing crisis in Portugal, approved at last week’s Council of Ministers, is generating a series of reactions in the real estate market. Developers and builders welcome the long-demanded reduction of VAT on construction and the simplification of licensing, two long-awaited incentives to increase housing supply. But, on the other hand, there is heavy criticism of the new concept of moderate rent, with a cap of up to 2,300 euros per month. The increase of IMT for non-resident buyers is also not well received. In this article prepared by idealista/news, find out how the sector’s players view these new housing measures, whose practical application will impact the lives of families and the real estate business.

Moderate rents up to 2,300 euros? Sector criticizes cap
IRS reduction for moderate rents: yes or no?
Tenants with higher rent deductions in IRS – is it enough?
6% VAT on house construction welcomed
Increased IMT for non-resident buyers poorly received by the sector

Moderate rents up to 2,300 euros? Sector criticizes cap

One of the new housing measures, presented in the renewed Construir Portugal program – and which has generated much controversy – concerns the replacement of affordable rent with the new concept of moderate rent, with values between 400 and 2,300 euros, without municipal limits.

The AD Government has been arguing that these limits of the moderate rent concept were defined to ensure its scope both geographically (including Lisbon and Porto), as well as in terms of household income, reaching middle-class families who earn around 5,750 euros per month. “This is our plan: we want to provide advantages to the whole territory,” summarized Prime Minister Luís Montenegro.

Despite the explanations given by the right-wing Executive, criticism of the upper limit of the moderate rent concept has not stopped pouring in. “To claim that 2,300 euros is a ‘moderate’ value is an insult and an outrage to the Portuguese people and tenants, current and future,” stressed the Lisbon Tenants Association (AIL) in a statement, considering these measures to be “out of touch with the economic and social reality of the Portuguese,” potentially “accelerating the housing crisis” in the country.

Also José Fernandes Martins, lawyer and spokesperson for the Association of Tenants and Condominium Owners of Northern Portugal, said the concept of moderate rent “is a disgrace.” This is because most Portuguese families are far from being able to afford these amounts. “If the average salary is around 1,000 euros, how can people pay rents of 2,000 or 2,300 euros? It’s impossible,” he told CNN Portugal.

When asked by idealista/news about this and other housing-related measures, the National Association of Portuguese Municipalities (ANMP) said it was not yet aware of the measures and had not been consulted by the Government, thus arguing that “it cannot yet comment.”

IRS reduction for moderate rents: yes or no?

This concept of moderate rents immediately introduces a new tax incentive: landlords who rent houses for up to 2,300 euros will see their IRS rate reduced from 25% to 10%, provided that rental contracts have a minimum term of three years.

And there are already many voices saying that this rent limit with tax benefits will contribute to an increase in rental prices. One of them was PS secretary-general José Luís Carneiro, warning that this measure will “trigger a spiral increase” in rents. João Pereira dos Santos, economist and professor at ISEG, also admits that this “high ceiling” may “create inflationary pressure for prices to rise, because people know they can go up to a certain point and still benefit,” he told Expresso.

Portugal’s Minister of Infrastructure and Housing, Miguel Pinto Luz, assures that the new concept of moderate rent will not contribute to real estate speculation. Economist Vera Gouveia Barros also believes this measure will not inflate rental prices. The maximum ceiling of moderate rent that will benefit from the IRS reduction “will not mean that rents of 1,500 euros suddenly increase to 2,300 euros,” she told CNN.

On the other hand, the AIL fears that the IRS reduction for rental contracts up to 2,300 euros and with a minimum duration of three years will “encourage the transition from long-term rental contracts to short-term contracts,” further undermining “tenants’ right to housing.”

With this tax incentive, the Government says it wants to “convince thousands and thousands of landlords to once again place their properties on the market,” as Pinto Luz told ECO. But is it enough? Economist Vera Gouveia Barros believes these measures “may be absolutely ineffective” in that sense, because it is not known why there are more than 300,000 vacant properties in Portugal outside the market. This measure does not, for example, solve conflicts between heirs that leave houses abandoned.

Some argue that the various measures announced in the scope of rental are “positive,” from the IRS reduction to 10% to the AIMI exemption for rentals up to 2,300 euros. This is the opinion of Luís Menezes Leitão, president of the Lisbon Landlords Association (ALP). But in his view, these measures “are still insufficient, since to restore credibility to the rental market, it is necessary to repeal aberrations such as the additional IMI (...) which only applies to housing buildings and therefore drives private investors away from housing,” he told idealista/news.

Furthermore, the ALP president believes it is “necessary to repeal all rental laws approved by António Costa’s Government and return to the 2012 rent law, which was the only law that managed to stimulate the rental market.”

Tenants with higher rent deductions in IRS – is it enough?

On the tenants’ side, Montenegro’s Executive announced only one support measure: rent deductions in IRS will be 15% up to a maximum of 900 euros in 2026, increasing this limit to 1,000 euros in 2027.

For the AIL, this is merely “a meager increase of the rent deduction limit to 900 euros in IRS,” which leaves out those who do not pay IRS, as well as tenants with pre-1990 contracts with updated rents, who also cannot use them in their IRS deductions.

On this measure, the CGTP asks: “What good is an annual tax saving when the money is not enough to pay rent each month?” In the inter-union’s view, it is necessary to expand the public housing stock at affordable prices, implement rent control measures with fixed ceilings, and change the urban rental regime.

Apparently, there will be no further support for tenants. The Government will not limit rent updates to 2.24% in 2026, nor directly support tenants who may face rent increases next year. Instead, a revision of the New Urban Rental Regime (NRAU) and simplification of existing rental support programs (such as Porta 65 or extraordinary rent support) is planned. Regarding the use of State-owned properties for housing, whether managed privately or municipally, the Government announced that they will have to have “moderate rents” (up to 2,300 euros per month).

6% VAT on house construction welcomed

At the end of the Council of Ministers held last Thursday (September 25), Luís Montenegro announced that the Government will reduce the VAT rate to 6% for house construction for sale up to 648,000 euros or, if for rent, with rents up to 2,300 euros – a tax regime that will remain in effect until 2029, at which point it will be reassessed.

This is one of the measures, which has seen advances and setbacks, but continues to be highly demanded by the construction and real estate sector, being considered able to help reduce housing prices. The Association of Civil Construction and Public Works Industrialists (AICCOPN) applauded the reduction of VAT from 23% to 6% on construction and rehabilitation, stating in a press release that it was “finally adopted by the Government.” The association, led by Manuel Reis Campos, welcomed the new measures to respond to the housing crisis, requesting that they be applied “swiftly and effectively.”

The Portuguese Association of Real Estate Developers and Investors (APPII) also praised “the 6% VAT measure for construction throughout the country, as well as for rental properties,” said its president, Hugo Santos Ferreira, in a statement, viewing it as the beginning of solving “the systemic housing problem in Portugal.”

A recent survey of construction experts conducted by the Fixando platform reveals that the reduction of VAT on construction to 6% is being received with “great enthusiasm” by industry professionals. The vast majority agree with the measure, admitting it will have “a direct positive impact on business,” being “beneficial for the entire construction sector.”

However, there are still some doubts that the Government has not clarified on how the application of the 6% VAT will be carried out. Will there be transitional rules for ongoing housing projects? The question is raised by João Cunha da Silva, real estate partner at CMS Portugal, who told the Now channel that it is necessary to “wait and see how the Government will handle projects already underway,” arguing it would not make sense for them to be “penalized” compared to others that have not yet started.

There is also criticism regarding the application of the 6% VAT for houses sold up to the maximum value of 648,000 euros. Real estate developer and tax specialist Ricardo Fernandes told Expresso that “a house of 648,000 euros, even over 30 or 40 years, results in a monthly payment far above a third of what the Portuguese average earns.”

In addition, Montenegro’s executive team approved the end of IRS capital gains on the sale of properties, provided that the amount is reinvested in housing for rental at moderate prices. And it also approved a new regime to simplify licensing, by reducing deadlines and eliminating bureaucratic hurdles. For AICCOPN, this is one of the measures that will most help unlock the potential of the housing sector.

For these measures to take effect in the residential market – especially on the supply side, responding to the high demand for homes according to the needs of those who live or invest in Portugal – the association led by Manuel Reis Campos emphasizes that everything depends “on their swift execution, the clarity of the applicable criteria, and coordination with complementary measures, such as reinforcing new construction, investing in urban rehabilitation, and mobilizing public and private assets for housing purposes.” The APPII also acknowledges that it is necessary to work with the Government towards quick implementation “without excessive bureaucracy.”

Increased IMT for non-resident buyers poorly received by the sector

There is one measure in the new housing package that affects foreigners and could impact the dynamics of real estate business in Portugal. The Government announced that it will increase the Municipal Property Transfer Tax (IMT) for home purchases by non-residents in Portugal, excluding emigrants – similar to what other countries facing housing crises, such as Canada, have done.

When presenting this measure, Miguel Pinto Luz assured that “Portugal will not stop attracting foreign investment,” stating that it is “a matter of fairness that will bring more equity and better redistribute wealth,” rejecting the attribution of blame to foreigners for rising house prices.

However, this measure was not well received by the real estate sector. The president of the APPII assumes it is a “punishment” for foreigners buying houses in the country, which are usually “very high-value properties,” he told Jornal Económico. The same was said by Patrícia Barão, partner and head of residential at consultancy Dils, who told the same newspaper: “Foreigners buy homes that are double or triple the price Portuguese families pay.”

The latest data from the National Statistics Institute (INE) reveals that international buyers acquired 2,107 homes in the second quarter of 2025, accounting for 4.9% of the national total, the lowest share since 2021. The average value of homes purchased by foreigners was 391,000 euros, 69% higher than the average price of homes bought by Portuguese (232,000 euros).

The flight of foreign investors is among the main consequences pointed out by industry professionals regarding this measure – which comes after the end of golden visas and restrictions on the Non-Habitual Residents (NHR) regime, carried out by António Costa’s socialist Government. “The danger is exactly sending the message that foreign investment is not welcome in Portugal, which is the wrong message,” said Patrícia Barão, stressing that this international investment is “important.”

“My suggestion as president of real estate developers and investors is to eliminate this measure, because it will have a negative impact on the country’s international credibility,” warned the president of the APPII to the same newspaper.

And Luís Menezes Leitão, from the ALP, even argues that “if this measure covers European Union citizens, it will be considered incompatible with the Treaties,” as he told idealista/news.

Meanwhile, the Portuguese Association of Residential Tourism and Resorts (APR) defended the exclusion of resorts located in low-density areas from the increased IMT for non-residents. “Penalizing foreign investment in tourist resorts outside urban centers, often in low-density territories, is a strategic mistake that will only result in a loss of investment, jobs, and tax revenue for those regions,” said APR’s executive director, Pedro Fontainhas. After all, “tourist resorts, located outside urban centers, do not compete with the primary housing market for Portuguese families,” he concluded.