Credit: FreepikPortugal’s Yield Gap in Affordable Housing and PBSA
From legislative hurdles to hybrid student assets, industry leaders examine why Portuguese residential remains a high-stakes game for institutional capital
March 17, 2026Real Estate
Written by:Helen Richards
Key Takeaways
- High construction costs and low yields currently make private affordable housing projects financially unviable without significant state intervention.
- Regulatory volatility and restrictive tenant preference laws are deterring international institutional capital from entering the Portuguese residential market.
- The student housing sector offers a high-growth alternative through hybrid operational models that maximise annual yields via seasonal flexibility.
While Portugal continues to be a magnet for international residents, the disconnect between housing demand and investable supply has reached a critical juncture.
At the GRI Institute’s recent Portuguese Affordability & PBSA Investments forum, co-hosted by CCA Law Firm, senior real estate developers, investors, and asset managers gathered to dissect the country’s affordability crisis and the burgeoning purpose-built student accommodation (PBSA) sector.
The consensus was clear: the opportunity is immense, but the path to execution is blocked by a "crazy" legal framework and lack of political alignment.
For many industry leaders, the current answer is a cautious ‘no’ considering the existing conditions. The stark reality: Portugal has one of the lowest pools of social housing in Europe, at roughly 2.8% to 3%. Despite this acute need, the financials for private developers to bridge the gap rarely adds up.
To achieve affordable rents, construction costs must sit between EUR 1,000 and EUR 1,100 per square metre - a near impossible figure in the current market.
Meanwhile, current models often result in a gross yield of just 3.5% to 4%, which is often a non-starter for institutional funds seeking a minimum internal rate of return (IRR) of 7%.
Considering this scenario, private developers require a viable middle ground where state intervention bridges the gap between costs and returns.
A proposed solution involves adopting a framework similar to the Belgian model, where a government entity acts as the primary client by purchasing or leasing large blocks of units. By serving as a single, guaranteed counterparty, the state allows developers to offload the complexities of tenant management and occupancy uncertainty.
This structure enables the private sector to focus specifically on its core expertise: managing the risks associated with construction and the timely delivery of sustainable, high-quality assets.
Of particular concern are the existing preference laws, which grant individual tenants the right to preemptively purchase their specific units, thereby complicating or even blocking the sale of large, institutional-grade building portfolios.
Such regulatory volatility has already begun to deter major international capital, with some pension funds reportedly redirecting their investments to more stable European markets.
This lack of architectural flexibility forces the development of larger, less efficient units, which ultimately inflates final prices for consumers and hinders densification efforts in high-demand urban centres.
Although these modifications offer better underwriting certainty, the administrative burden of ensuring compliance remains significant. Developers are still faced with navigating a complex fiscal landscape where the risk of non-compliance can heavily impact project viability.
While the Portuguese market is still maturing compared to neighbouring Spain, the current provision rate for student beds sits at a mere 6% to 7%. This figure stands in sharp contrast to more consolidated European markets like the UK or the Netherlands, where provision rates range from 25% to 30%, signaling a massive, untapped runway for institutional growth in Portugal.
Because these assets are less sensitive to standard residential lease restrictions and offer a reliable hedge against inflation, they have become a primary target for global core capital seeking stable, long-term returns.
To bridge the gap in seasonal occupancy, developers are increasingly prioritising architectural and operational flexibility. By designing units that can easily pivot between student housing during the academic year and mid-term professional or tourist accommodation during the summer, operators can significantly maximise their annual yield.
This strategy often involves specific design choices, such as installing 1.40m beds to accommodate couples and modular kitchens that meet different regulatory standards for short-term stays.
Such adaptability is viewed as essential for navigating the local "Excel problem" of construction costs, ensuring that even in expensive urban centers like Lisbon and Porto, these hybrid projects remain financially viable throughout the entire calendar year.
The message to policymakers is clear: the housing crisis is a problem of offer, not demand. Until the state provides meaningful tax incentives, stable leasing laws, and faster licensing, institutional capital will remain on the sidelines, waiting for the moment when Portugal's potential finally aligns with its policy.
At the GRI Institute’s recent Portuguese Affordability & PBSA Investments forum, co-hosted by CCA Law Firm, senior real estate developers, investors, and asset managers gathered to dissect the country’s affordability crisis and the burgeoning purpose-built student accommodation (PBSA) sector.
The consensus was clear: the opportunity is immense, but the path to execution is blocked by a "crazy" legal framework and lack of political alignment.
Affordability Deadlock
The million-dollar question: can a project generate solid returns while contributing to affordability?For many industry leaders, the current answer is a cautious ‘no’ considering the existing conditions. The stark reality: Portugal has one of the lowest pools of social housing in Europe, at roughly 2.8% to 3%. Despite this acute need, the financials for private developers to bridge the gap rarely adds up.
To achieve affordable rents, construction costs must sit between EUR 1,000 and EUR 1,100 per square metre - a near impossible figure in the current market.
Meanwhile, current models often result in a gross yield of just 3.5% to 4%, which is often a non-starter for institutional funds seeking a minimum internal rate of return (IRR) of 7%.
Considering this scenario, private developers require a viable middle ground where state intervention bridges the gap between costs and returns.
A proposed solution involves adopting a framework similar to the Belgian model, where a government entity acts as the primary client by purchasing or leasing large blocks of units. By serving as a single, guaranteed counterparty, the state allows developers to offload the complexities of tenant management and occupancy uncertainty.
This structure enables the private sector to focus specifically on its core expertise: managing the risks associated with construction and the timely delivery of sustainable, high-quality assets.
Legislative Instability
Leasing Legislation
A central point of contention among industry experts is the pervasive level of state control and the inherent instability of Portuguese leasing legislation.Of particular concern are the existing preference laws, which grant individual tenants the right to preemptively purchase their specific units, thereby complicating or even blocking the sale of large, institutional-grade building portfolios.
Such regulatory volatility has already begun to deter major international capital, with some pension funds reportedly redirecting their investments to more stable European markets.
Urban Planning
Beyond lease structures, the market is grappling with a regulatory framework for urban planning that many consider significantly outdated. Current building codes often mandate apartment dimensions and room sizes that do not reflect the reality of modern, smaller households.This lack of architectural flexibility forces the development of larger, less efficient units, which ultimately inflates final prices for consumers and hinders densification efforts in high-demand urban centres.
VAT Modifications
While recent legislative shifts - such as the clarification of the 6% VAT rate for affordable housing - have introduced a degree of much-needed predictability, they have not entirely smoothed the path for developers.Although these modifications offer better underwriting certainty, the administrative burden of ensuring compliance remains significant. Developers are still faced with navigating a complex fiscal landscape where the risk of non-compliance can heavily impact project viability.
Portugal’s real estate market leaders gathered in Lisbon for GRI Institute’s Portuguese Affordability & PBSA Investments forum. (Credit: GRI Institute)
The Hybrid PBSA Solution
The PBSA sector has emerged as a compelling alternative to traditional residential models due to its unique status as a hybrid between real estate and operational hospitality.While the Portuguese market is still maturing compared to neighbouring Spain, the current provision rate for student beds sits at a mere 6% to 7%. This figure stands in sharp contrast to more consolidated European markets like the UK or the Netherlands, where provision rates range from 25% to 30%, signaling a massive, untapped runway for institutional growth in Portugal.
Because these assets are less sensitive to standard residential lease restrictions and offer a reliable hedge against inflation, they have become a primary target for global core capital seeking stable, long-term returns.
To bridge the gap in seasonal occupancy, developers are increasingly prioritising architectural and operational flexibility. By designing units that can easily pivot between student housing during the academic year and mid-term professional or tourist accommodation during the summer, operators can significantly maximise their annual yield.
This strategy often involves specific design choices, such as installing 1.40m beds to accommodate couples and modular kitchens that meet different regulatory standards for short-term stays.
Such adaptability is viewed as essential for navigating the local "Excel problem" of construction costs, ensuring that even in expensive urban centers like Lisbon and Porto, these hybrid projects remain financially viable throughout the entire calendar year.
The Path Forward
Despite the alarming complexity of Portugal’s licensing processes, there is a sense of long-term optimism. Local partnerships are increasingly used to navigate fragmented administrative structures and political uncertainty at the municipal level.The message to policymakers is clear: the housing crisis is a problem of offer, not demand. Until the state provides meaningful tax incentives, stable leasing laws, and faster licensing, institutional capital will remain on the sidelines, waiting for the moment when Portugal's potential finally aligns with its policy.
These insights were shared during GRI Institute’s Portuguese Affordability & PBSA Investments forum, co-hosted by CCA Law Firm, with participation from Claude Kandiyoti (Krest Real Estate), Frederico Arruda (Refundos Explorer), Houssam Dehhaze (SouthShore Investments), Katja Pazelskaya (Blue Tagus), Madalena Perdigão (CCA Law Firm), Nicolas Goffin (Besix Red), Pedro Antunes (Alea Capital Partners), Susana Correia (Consfly), Teresa Ribeiro (Imota), Tomás Assis Teixeira (CCA Law Firm), and Vítor Oliveira (Stoneshield Capital).