Portugal is making bold moves to address its growing housing crisis. Prime Minister Luis Montenegro announced that the government will increase the property purchase tax (IMT) on non-residents, a step aimed at cooling foreign demand and making homes more accessible to Portuguese citizens.
For years, Portugal has been one of Europe’s most attractive real estate markets for overseas investors. Mild weather, relatively affordable living costs, and residency pathways like the Golden Visa program turned Lisbon, Porto, and coastal towns into hot spots for foreign buyers. But this surge in demand has also pushed property prices beyond the reach of many local families.
Now, the government wants to rebalance the market. By raising taxes on foreign buyers while increasing housing supply for locals, Portugal hopes to strike a fairer balance between international investment and domestic affordability.
Why Is Portugal Raising Property Taxes on Foreigners?
At the heart of the reform is the IMT (Imposto Municipal sobre Transmissões Onerosas de Imóveis), a municipal transfer tax applied when buying property. Currently, both residents and non-residents pay IMT, but foreigners will soon face a higher rate.
According to Portugal’s National Statistics Institute, the price gap between locals and non-residents is striking:
- Non-EU buyers spend an average of €451,000 ($523,000) on property.
- EU buyers spend around €310,000.
- Portuguese citizens pay about €225,000 on average.
This data shows that foreign demand — especially from outside the EU — is significantly inflating property prices. The government believes that a higher tax burden on overseas investors will help cool speculative demand and prevent locals from being priced out of their own neighborhoods.
The Bigger Housing Crisis
Portugal’s housing problems go far beyond taxes. According to Idealista, the country’s average property price in May 2025 was €2,851 per square meter — more than double what it was in 2015.
Several factors are fueling this crisis:
- Soaring Demand from Foreign Buyers – Portugal remains a top choice for Americans, Brazilians, and Chinese investors. Even after the Golden Visa real estate option was scrapped in 2023, demand has not cooled significantly.
- Limited Housing Supply – Construction is slow, and new permits often take years to process. With supply failing to meet demand, prices naturally rise.
- Urban Pressure – Lisbon, Porto, and Algarve have seen sharp increases in short-term rental conversions (like Airbnb), further limiting long-term housing availability for locals.
- Rising Cost of Living – While Portugal is still cheaper than much of Western Europe, the gap is closing. For locals, stagnant wages are not keeping pace with skyrocketing housing costs.
What Other Measures Is Portugal Taking?
Prime Minister Montenegro emphasized that the new tax is only one part of a wider housing strategy. The government is also planning to:
- Build more homes to ease supply constraints.
- Expand affordable rental options for young families and workers.
- Speed up construction permits to encourage faster housing development.
- Offer tax breaks for first-time and young buyers to help them enter the property market.
The goal is to expand housing access for Portuguese citizens while reducing speculative foreign pressure on the market.
How Will This Affect International Buyers?
Foreign investors, particularly from non-EU countries, have been a major driving force in Portugal’s property boom. According to Henley & Partners, Portugal is projected to attract over 1,400 millionaires in 2025, while Italy and Greece will welcome even larger inflows of wealthy individuals.
However, with higher IMT taxes, the cost of buying property in Portugal will rise for non-residents. This could make some investors reconsider — particularly those who see Portugal primarily as a financial investment rather than a long-term residence.
That said, Portugal’s fundamentals remain strong:
- It offers a stable economy within the EU.
- The climate, safety, and lifestyle continue to attract retirees and digital nomads.
- Residency pathways like the D7 visa for passive income earners and the digital nomad visa remain attractive alternatives to the Golden Visa.
So, while the increased IMT tax may discourage speculative buyers, Portugal will likely remain a top destination for those seeking lifestyle benefits, not just financial returns.
Impact on Local Communities
For many Portuguese families, the housing market has felt out of reach in recent years. In Lisbon and Porto, it is common for young professionals to spend more than 40% of their income on rent, leaving little room for savings or eventual homeownership.
By targeting foreign buyers with higher taxes, the government hopes to slow the pace of price growth and create more breathing room for locals. If combined with faster housing development and affordable rental schemes, this could gradually improve accessibility.
Still, experts caution that taxation alone will not solve the problem. Without a major boost in new housing supply, prices are unlikely to fall significantly.
Portugal’s Place in the Global Real Estate Market
Portugal is not alone in grappling with the impact of foreign buyers. Other countries facing similar affordability challenges have already imposed restrictions or extra taxes:
- Canada introduced a two-year ban on foreign homebuyers in 2023.
- New Zealand banned most foreigners from buying existing homes in 2018.
- Australia imposes additional stamp duties on non-resident buyers.
Portugal’s new IMT policy is less drastic — it does not ban foreigners but simply makes buying property more expensive. This reflects a middle path: welcoming international investment while prioritizing housing access for citizens.
Final Thoughts: A Balancing Act
Portugal’s decision to raise the property purchase tax on non-residents highlights the growing tension between global demand and local affordability.
For years, international interest boosted the Portuguese economy and revitalized cities. But the downside has been a housing market that feels increasingly out of reach for locals.
The new IMT tax, paired with expanded housing supply and youth incentives, could rebalance the market. Still, much depends on how effectively the government can deliver new homes and affordable rental options.
For overseas investors, Portugal will remain an attractive destination — but it will no longer be the bargain it once was. For locals, this policy shift may offer a much-needed opportunity to secure housing in their own cities.
