Portugal Introduces New Incentives for Residential Real Estate Investment

Portugal has enacted Decree-Law No. 97/2026, introducing a significant package of measures designed to increase housing supply and attract investment into the residential real estate sector. The new framework creates attractive opportunities for international investors, developers, real estate funds, and family offices seeking exposure to the Portuguese market.

By combining tax incentives, reduced development costs, and new investment structures, the legislation reinforces Portugal’s position as one of Europe’s most compelling destinations for long-term real estate investment.

Key Measures for International Investors

Reduced VAT on Residential Construction and Rehabilitation

The new regime extends the application of the reduced VAT rate to qualifying residential construction and rehabilitation projects. This measure can substantially reduce development costs and improve project profitability, particularly for investors focused on residential developments and build-to-rent schemes.

More Efficient Reinvestment of Real Estate Capital Gains

The legislation introduces enhanced tax treatment for the reinvestment of capital gains derived from real estate transactions into qualifying residential rental projects. This creates additional flexibility for investors seeking to optimise portfolio restructuring and long-term asset allocation strategies.

New Housing Investment for Rental Agreements (CIA)

A new legal framework — the Housing Investment for Rental Agreements (Contratos de Investimento para Arrendamento) — has been established to encourage the development of residential rental stock. This regime may provide access to long-term tax benefits and greater legal certainty for qualifying investment projects.

Enhanced Tax Incentives for Residential Leasing

The decree includes measures aimed at reducing the tax burden associated with residential rental income, improving net yields and increasing the attractiveness of Portugal’s rental market for both institutional and private investors.

Incentives for Affordable Housing Projects

Additional benefits are available for projects developed under affordable housing and moderate-rent schemes. These measures create new opportunities for investors interested in socially responsible investments while benefiting from favourable tax treatment and public policy support.

Why This Matters

The Portuguese residential market continues to experience strong demand, driven by demographic growth, urbanisation, international mobility, and a persistent shortage of housing supply.

Against this backdrop, Decree-Law No. 97/2026 offers investors:

• Reduced development and construction costs;
• Improved tax efficiency;
• Greater legal and regulatory certainty;
• New opportunities in the residential rental sector;
• Access to incentive schemes designed to support long-term investment strategies.

For international investors looking to establish or expand their presence in Portugal, these measures may significantly enhance the viability and profitability of residential real estate projects.