Property association boss paints bright picture of market with dark undertones

Text: Chris Graeme

The CEO of the Portuguese Association of Real Estate Developers and Investors (APPII) has welcomed a new law which provides more stability for developers and builders operating in the country’s construction market.

Manuel Maria Gonçalves praised the rubber stamping of tax measures for new build housing set at 6% VAT at the 3rd edition of the Real Estate Shapers Conference organised by Magazine Imobiliário held in the Chapel at the Armando Martins Museum of Contemporary Art (MACAM) in Lisbon on Tuesday (May 26).

The bad news, however, was that he didn’t see Portugal’s chronic urban planning licensing problems improving any time soon.

For over a decade Portuguese and overseas developers operating in the country have argued that high VAT taxes at 23% only exacerbated soaring building materials and manpower costs making it financially unviable for developers to build affordable housing, while slow and complicated planning permission procedures frighten away overseas investors and developers at all price points.

“The law that has given (the market) some stability was published 100 days ago and VAT at 6% is finally in force as is the New Urban Rental Regime governing temporary (fixed-term) rental contracts” which now stipulates that leases must feature a mandatory minimum 1-year duration, automatic renewal clauses, and strict rules around tenant protections.

“A number of ambitious policies have been introduced in recent years to create more housing supply which is good since the (legal) environment before had been anything but convenient”, he said.

Manuel Maria Gonçalves stressed that it was important to recognise the changes which had been achieved with the help of political opposition parties in Portugal.

However, he said it was also important to know what had been “unblocked” and what still “remained blocked”.

And he reminded that movers and shakers in the sector had been “debating the problems for over a decade” discussing housing without building it which had had consequences.

“There’s a tendency to treat the housing crisis in Portugal as though it were a recent phenomenon, made worse by the pandemic, high interest rates, and inflation, as if these were the causes of the crisis.”

“But the problem didn’t start there. The problem is a Portuguese one; is structural and stretches back long before”, added Mr. Gonçalves.

Portugal is just not building houses

Portugal, he said, was the country in the EU which had built the least over the past decade. Construction levels had never really recovered from the 2008-2014 financial crisis and even before then was below the EU average.

In 2024 there were 156,000 individuals of tax paying age in Portugal and of these only 34,000 were housed in new licensed homes.

And in the Euro Zone the average was 50 new homes for each 1000 citizens whereas in Portugal it was only 20.

“The problem is not just structural – it’s also cultural. “We’re talking about over a decade since 2010 with just 200,000 houses and the result is clear. In Lisbon 60% of houses are selling for over €500,000, only 4% cost less than €200,000”, he revealed.

And between 2019 and 2025 prices had climbed 33%. Yet for the same period average income grew 43% but with a reduction of almost 60% in purchasing power (due to inflation).

Yet people were forced to turn to renting again (in a society that since the 1980s had become primarily home owners rather than renters).

“The middle class in Portugal wants to buy but finds there isn’t the supply at prices they can afford. Therefore, we have two ways of solving the situation: build more for the middle classes or create the conditions for properties that are off the market to be on the market – but were not because owners didn’t trust the system”, explained the APPII CEO.

And he warned that without a rental market that worked – meaning one that was not overly weighted in favour of the tenant) there would never be large-scale supply to meet the demand.

Here was an opportunity to solve the issue, but it was economically unviable to build affordable housing on plots of land in urban centers in the vast majority of cases – the land is too valuable.

“Without economic viability there’s no investment, and without investment there’s no affordable supply. That’s the reality people assume, and we have to realise that developers only want to build homes that cost over €600,000,” he said.

But it was a false premise. Families who can afford €150,000 to €200,000 homes make up the bulk of the population and therefore the largest market in Portugal, but the accounts for developers don’t add up – it was not economically viable.

To give an example, to build a new 75m2 appartment costs a developer €170,000 in direct costs.

That amount includes the cost of the land, credit, bureaucracy, commission and developer margins.

On top of that are other costs adding 20% to 25% and taxes that add on another 45% on the end cost of the property.

It meant that developers can’t do it at a reasonable price even when they do manage to reduce costs.

Planning licensing takes 3 years and delays cost €75,000

The reasons were clear: unpredictable licencing, construction costs that are high because of State regulations, and plots of land at prices that are incompatible with Municipal Director Plans.

Since 2020, it has taken around three years on average to get planning permission to build homes – delays that add around €75,000 onto costs for the developers which have to pass these costs on to the final consumer.

And in Portugal there is no one construction logistics platform with the mayors of different municipal councils all having their own rules.

In other words the technical requirements are out of date and not fit for purpose for today’s economic and developmental reality.

“We have a country of poor people with lots of services and regulatory demands that make many housing for affordable rent projects unviable even when this does not pose a safety risk”, lamented the APPII CEO.

For example, in Portugal new housing developments have to have by law interior accesses.

However, in Spain housing does not have a legal obligation for interior accesses, except shared areas.

“We could create licenses that are waived for construction housing, public housing for housing, which would solve the problem. It’s evident that the institutional context has brutally increased construction costs and the price per square meter, and all of this is relevant.”, he said.

Industrialisation would also come into play because it was one way to reduce costs for buyers.

Lastly, land costs. These represent between 20% and 25% of the final price of a house and there were some solutions to be found in Public-Private Partnerships.

“The State has land, but it doesn’t have the capacity to build, and we have the capacity to build, but we don’t have land to industrialise and make it accessible.

“For every house built, I ask, what has the State built in the last year? Because sometimes it makes sense for the welfare state to have no money and we don’t want a welfare state building public housing.

In a country where 2% of housing stock is vacant, the answer is obvious. It hasn’t built, nor will it build this 2% increase that is needed. It doesn’t have the technical capacity and it doesn’t have the financial capacity”, concluded the CEO of the APPII, Manuel Maria Gonçalves.

Source: Essential Business