The reduction of VAT from 23% to 6% on construction and rehabilitation works intended for housing is one of the central measures of the new fiscal package for the real estate sector enacted by the Government. The regime applies to properties intended for sale up to approximately 660 thousand euros or for rental with rents up to 2,300 euros per month, and aims to stimulate housing supply, increase the economic viability of projects, and ease pressure on prices.
In addition to the VAT reduction, the package includes incentives for the reinvestment of capital gains in rental properties and seeks to create more favourable conditions for construction and urban rehabilitation. Even so, the sector is reacting cautiously. The main question is to what extent these measures will have a real impact on final prices, or whether the tax savings will ultimately be absorbed by the remaining costs of property development.
To understand how the market is responding to these changes, Público Imobiliário spoke with Estela Baixia, executive director of Grupo Empril, a company linked to property development and real estate investment, and Carlos Marnoto, head of Promiris, a Belgian real estate developer operating in several European markets.
Lower VAT, but no guarantee of cheaper homes
Both executives agree on one essential point: the VAT reduction is unlikely to have an automatic and immediate effect on sale prices or rents.
“The reduction of VAT on construction and rehabilitation works is a positive measure that the sector has long been calling for. In theory, it creates room to reduce production costs and, in that way, may ease the final sale price or allow for more competitive rents,” says Estela Baixia. However, she warns that housing costs result from multiple components, such as land value, financing, licensing, labour, materials, and urban development charges, meaning that “one should not assume that this difference will automatically, and entirely, be reflected in the price paid by the consumer.”
Carlos Marnoto shares the same view. According to the head of Promiris, “there will probably not be a direct reduction in prices, since the savings generated tend to be absorbed by the current high construction costs.”
Even so, both believe that the most relevant effect of the measure may lie elsewhere: in the economic viability of projects. “It may not only lower prices in some cases, but above all make projects viable that, with VAT at 23%, simply would not move forward,” says Estela Baixia. Carlos Marnoto also believes that the most important impact will be “making more projects viable, allowing supply to increase in the medium term and contributing, later on, to price stabilisation.”
Companies are already reviewing projects
The new rules are already leading developers to reassess operations in their portfolios, although the sector continues to call for greater legislative clarification. “In our case, the interpretation is cautious,” explains Estela Baixia. “We are reviewing financial assumptions, eligibility criteria, and the fiscal framework of projects. It is not enough for the measure to exist; it is essential that there is legal certainty in its application.”
She admits that the VAT reduction is making projects outside major urban centres more attractive, where land prices are lower. “Perhaps we will now begin to look with greater interest at projects outside the major cities, which could alter Portuguese demographics in the long term.”
At Promiris, the scenario is similar. “We are reviewing projects, recalculating margins, and adjusting strategies,” says Carlos Marnoto. Even so, the company is awaiting “greater legislative clarification before moving forward fully.”
Limits may reduce the impact in major cities
One of the most debated aspects of the fiscal package concerns the limits defined for access to reduced VAT: sales up to 660,982 euros and rents up to 2,300 euros per month.
For Estela Baixia, the criteria follow an “understandable political logic: directing the benefit towards housing and not clearly luxury products,” but they may prove inadequate in the most pressured markets. “In Lisbon, Porto, Cascais, Oeiras, or certain areas of the Algarve, the sale limit may exclude projects that are not necessarily luxury developments, but simply reflect very high land, construction, and financing costs.”
Carlos Marnoto also believes that the limits may be “tight in major metropolitan areas, as these are the zones under greatest pressure in terms of housing demand,” although he notes that they result from socioeconomic criteria aligned with European housing policies.
According to both interviewees, the risk is that the package may have a greater impact in markets where housing pressure is lower and less effect precisely in the areas where the problem is most severe.
The issue of tax settlements in Urban Rehabilitation Areas
Another concern dominating the sector relates to additional tax assessments by the Tax Authority (AT) concerning works in Urban Rehabilitation Areas (ARU). In recent months, several companies have begun receiving tax corrections related to the application of the reduced VAT rate, after the AT’s interpretation started requiring not only the existence of an ARU, but also an approved Urban Rehabilitation Operation (ORU).
According to Estela Baixia, this is “one of the most worrying issues for the sector.” She warns of “unexpected cost increases, tax litigation, project suspensions, greater risk aversion, and reduced investment in urban rehabilitation,” even admitting that the solvency of some companies, “particularly in the construction sector,” could be jeopardised. “Urban rehabilitation requires stability, predictability, and confidence,” she states.
Carlos Marnoto agrees, stressing that “the consequences may be serious and have a significant impact. Fiscal uncertainty and the risk of corrections to 23% VAT could halt new rehabilitation projects, generate disputes, and undermine confidence in the ARU regime.”
A positive step, but insufficient
Despite their reservations, both executives consider the fiscal package globally positive. “The main positive effect is reducing the fiscal cost of residential construction and rehabilitation,” says Estela Baixia, also considering important the “political signal” recognising the weight of taxation in the housing problem. Carlos Marnoto likewise highlights “the greater economic viability of projects and the potential stimulus for new construction and rehabilitation.”
However, neither believes that these measures are sufficient to solve the problem of affordable housing in Portugal. Structural obstacles remain, such as the scarcity and price of land, slow licensing procedures, high construction costs, financing difficulties, and regulatory and fiscal instability.
“It is a welcome measure, but its success will depend less on the announcement itself and more on practical implementation, the stability of the rules, and the confidence it manages to convey to the market,” concludes Estela Baixia.
Carlos Marnoto leaves a similar message: “Without an increase in available urbanisable land, genuine simplification of licensing procedures, and long-term rental policies, the impact of these measures may be limited.”