Portugal's New Housing Measures 2025: What Foreign Buyers and Algarve Investors Need to Know
On September 26, 2025, Portugal's government approved a comprehensive package of housing measures that will significantly impact foreign property buyers and investors. For those considering investment in the Algarve region, these changes represent both challenges and opportunities that require careful consideration.
The Key Changes for Foreign Investors
Higher Taxes for Non-Resident Buyers
The most significant change for international investors is the increase in the Municipal Tax on Onerous Real Estate Transmissions (IMT) for non-residents purchasing property in Portugal. This measure specifically targets foreign buyers and is designed to cool speculative demand that has contributed to rising property prices across the country.
What this means for Algarve investors: Properties in popular coastal areas like Lagos, Luz, and Burgau may see reduced competition from speculative buyers, potentially stabilizing price growth in the medium term.
Tax Incentives for Moderate Rental Properties
The government has introduced several measures to encourage rental supply:
- Reduced IRS tax rate from 25% to 10% on rental income for properties leased at moderate rents (up to €2,300/month)
- AIMI tax exemption for rental properties with monthly rents up to €2,300
- Capital gains tax elimination for property owners who reinvest proceeds into moderate rental housing
Opportunities for Strategic Investors
Enhanced Support for Young Portuguese Buyers
The public guarantee program for Portuguese residents under 35 has been expanded by €350 million, bringing the total to €1.55 billion. This allows young buyers to finance 100% of homes valued up to €450,000 with state backing.
Algarve impact: This could increase demand from domestic buyers in the region, particularly for properties in the €300,000-€450,000 range.
Construction and Development Incentives
- VAT reduction to 6% for construction of homes priced up to €648,000
- Simplified licensing procedures to accelerate new housing projects
- Support for construction worker housing to address labor shortages
What This Means for Algarve Property Investment
Short-Term Implications
The increased IMT for foreign buyers will likely:
- Reduce speculative investment in prime coastal areas
- Create opportunities for serious long-term investors
- Potentially slow price appreciation in the most expensive markets
Long-Term Opportunities
Smart investors should consider:
- Rental properties in the moderate price range to benefit from tax incentives
- Development projects that can leverage reduced VAT and simplified licensing
- Properties targeting domestic buyers who now have enhanced financing support
Strategic Recommendations for Investors
For Buy-to-Let Investors
Focus on properties that can be rented for under €2,300/month to benefit from the 10% tax rate and AIMI exemption. Areas like Lagos and surrounding villages offer excellent rental potential within this range.
For Developers
The combination of reduced VAT, simplified licensing, and strong domestic buyer support creates favorable conditions for residential development projects in the Algarve.
For Long-Term Investors
While the increased IMT adds to upfront costs, the measures aimed at increasing housing supply may help stabilize the market and create more sustainable long-term growth.
The Bigger Picture
These measures represent Portugal's attempt to balance foreign investment attraction with domestic housing affordability. For Algarve investors, the key is adapting strategies to work within the new framework while capitalizing on the incentives for rental properties and development projects.
The changes also signal Portugal's commitment to maintaining its attractiveness to international investors while addressing local housing needs – a balance that could create more sustainable market conditions in the long run.
Bottom Line: While the increased taxes for foreign buyers add complexity, the comprehensive nature of these measures creates new opportunities for investors willing to adapt their strategies to Portugal's evolving real estate landscape.