The Cascais Letter · Market notes

What renovating in Portugal actually costs: the taxes, licences and line items nobody puts in the brochure.

Ask around Cascais or Lisbon and you will be quoted a price per square metre for renovation, as if it were a single number a serious person could rely on. It is not. The builder's figure is only the middle of the bill. Around it sit a tax rate that can add 23 percent or 6 percent depending on paperwork most buyers have never heard of, a licensing route that sets your timeline before it sets your budget, professional fees, municipal charges, and a tax revaluation waiting at the end. Our earlier guide to renovating covers the process and the people. This one covers the money: the parts that can be checked, in writing, before you sign anything.

Filed under: Buying in Portugal

The square metre number, and why it misleads

Renovation is not a product with a list price. Two apartments of the same size on the same street can differ by a factor of two: one needs kitchens, bathrooms and finishes, the other needs structure, roofing, plumbing runs and wiring before finishes are even discussed. A per square metre quote given before anyone has opened a wall is a guess wearing a uniform.

Notice, too, that the only per square metre construction figures the Portuguese state publishes are tax figures. For 2026, the official average construction value used in the property tax formula is €570 per square metre, set by Portaria n.º 471/2025/1, up from €532, where it had sat since 2023. With the 25 percent land element the law adds, the base value in the formula is €712.50 per square metre. That number decides part of your IMI, the municipal property tax. It is not what a builder charges, and in Cascais it is nowhere near what building work costs. Keep it in its place: it belongs to the tax office, and it will matter to you later in this article, when the renovation is finished and the tax value of your home is recalculated.

What INE, the statistics office, does publish about real building costs is an index, not a price. It tracks how the cost of building new housing moves. That movement is the part of your budget you do not control, and at the moment it is moving fast.

Costs are rising 7.5 percent a year, and quotes age quickly

In August 2026, the cost of building new housing in Portugal was 7.5 percent higher than a year earlier, on INE's construction cost index. Labour rose 8.0 percent and materials 7.1 percent, and INE's release notes that not one material it tracks fell in price over the year. Copper wire and diesel rose by about 30 percent, PVC tubing by about 20 percent, and tiles, external insulation systems and pipework by about 15 percent. It is the fastest annual rise in the index since February 2023, and the index now stands roughly a third above where it stood in 2021.

Renovation is not new building, and the index does not price your project. Read it for what it does to behaviour. A builder quoting today is pricing labour he may not be able to hire in four months, in a market where every builder is competing for the same scarce trades. So quotes come with short validity, sometimes 30 days, and contracts come with price revision clauses. A quote from the spring is not a price you hold in the autumn. When you compare builders, compare the date and the validity period alongside the total, and ask what happens to the price if the start date slips. Those two questions tell you more about the final bill than the headline figure does.

The tax on the works: 23 percent is the default, 6 percent is the exception

VAT on building work in mainland Portugal is charged at the standard rate of 23 percent unless the work qualifies for a reduced rate. On a €200,000 contract, that is €46,000 of tax. It is the single largest line item most buyers forget to budget, because quotes are often discussed net and the tax arrives on the invoice.

There is a reduced rate of 6 percent, and it is widely talked about as if it applied to renovation in general. It does not. Item 2.23 of List I of the VAT Code applies the 6 percent rate to building rehabilitation contracts on properties located in a legally delimited urban rehabilitation area, an ARU. And in a uniform ruling, the Supremo Tribunal Administrativo, Portugal's supreme administrative court, held that the work must also sit within an approved urban rehabilitation operation for that area. The tax authority applies the same reading. Many elegant streets in Lisbon and some older quarters elsewhere are inside an ARU. Most of Cascais, Estoril and the modern suburbs are not, and even inside an ARU the second condition catches people out.

The arithmetic is why this matters. The same €200,000 contract, taxed at 6 percent instead of 23 percent, carries €12,000 of VAT rather than €46,000: a difference of €34,000 on one project. (Worked example, for illustration: whether any given project qualifies is a question to settle in writing, with your tax adviser, before the contract is signed, not after the first invoice.) Two practical points follow. First, if a builder promises you the 6 percent rate, ask him to show you the ARU delimitation and the approved operation covering your street. If he cannot, budget at 23 percent. Second, materials you buy yourself, a kitchen ordered in your own name, for example, do not inherit any rate from the works contract. They are taxed as goods, normally at 23 percent, and splitting purchases to chase a rate usually costs more in lost warranty and coordination than it saves.

The licence decides your timeline before it decides your budget

Since the 2024 Simplex reforms, revised again with effect from 1 October 2026, Portuguese building control runs on three routes, and which one your project falls into is a legal question with a cost attached.

Some work is exempt from prior control altogether. Conservation work, and interior alterations that do not touch the structure, the façade, the roofline or the floor area, generally need no licence and no prior notice. Interior work that does alter the structure can also be exempt, carried out under a signed responsibility statement from a qualified technician. Do not read exempt as unregulated: the planning rules and technical codes still apply in full, the council can still inspect, and work that needed control and never had it becomes a problem the day you sell, because the deed process now asks about building titles.

Work in the middle route goes by comunicação prévia, a prior notification under which the council checks the file against set parameters rather than granting a discretionary licence. Larger or more sensitive work still needs a full licence. There, at least, the law now puts a clock on the council: decision deadlines of 120 days for smaller buildings, 150 days for larger ones and listed property, and 200 days above that, after which silence counts as approval and you can obtain a certificate proving it. The old paper licence document has gone; the receipt for the municipal fees is the title. Those fees are set by each council in its own published fees regulation, they vary, and in Cascais they are a real line item on a large project rather than a formality. Ask for the fee estimate at the same meeting where you ask about the route. It exists, and it can be calculated before you commit.

The buyer's point is sequencing. Until you know the route, you do not know whether you are starting in six weeks or in six months, and a renovation budget that assumes the wrong start date is fiction. Establish the route, in writing, from the council or from your architect's reading of the municipal plan, before the purchase completes if the renovation is the reason you are buying. That is due diligence, and it belongs in the same conversation as the one our due diligence guide covers for the promissory contract.

The people and the paperwork around the builder's number

A builder's contract is one part of the professional stack, and the rest charge too.

The design work comes first. Architecture projects have to be authored and signed by an architect, and the technical projects that follow, structure, water, drainage, electrics, gas, thermal performance, are signed by the engineers responsible for each. Their fees are negotiated, fixed or percentage based, and they are not optional decoration: their signatures are what the licensing routes run on, where a route applies, and their responsibility statements are what exempt structural work stands on. Your builder, in turn, must hold a construction licence, an alvará issued through IMPIC, the sector's regulator, covering the class of work he is doing. Checking that licence is free and takes minutes. An unlicensed builder is not a saving; he is the point at which your insurance, your warranty and your legal position all thin out at once.

Deep renovations also pull the property into the energy rules. Portugal's building energy code, Decreto-Lei n.º 101-D/2020, sets performance requirements for major interventions, which can mean insulation, window specifications and systems you had not planned to touch. Whether your project crosses that line is a question for your architect at design stage, when the answer is cheap, rather than at inspection stage, when it is not.

And when the work is done and the property is re-evaluated, the tax office applies its own arithmetic. A rebuilt or substantially altered property is reassessed for IMI on a fresh Modelo 1 filing, and from 1 January 2026 that assessment uses the €570 per square metre construction value described above, not the €532 of the years before. A renovation that lifts your tax value lifts your annual IMI with it. It is rarely a reason not to renovate. It is always a number to know before you start, and our Portugal property tax guide works through how the valuation formula fits together.

Three questions to ask before you sign a building contract

Which VAT rate is on this quote, and what is it based on?

Get the rate in the contract, not in the conversation. If it is 6 percent, ask for the rehabilitation area paperwork behind it. If nobody can produce it, price the job at 23 percent and treat anything else as a bonus.

Which licensing route is this project on, in writing?

Exempt, prior notification or licence changes your start date by months. It also changes what you sign, what you pay the council and what you will be able to show a future buyer. The answer should come from the municipal plan and the current rules, not from the builder's optimism.

What is outside this number?

Architect and engineer fees, municipal fees, the energy requirements, the contingency for what opening the walls reveals, and the higher property tax that follows reassessment. On older Cascais and Lisbon stock, I would not sign a contract without at least a tenth of the budget held back unallocated for discoveries. The houses that punish buyers are the ones whose budgets assumed nothing would be found.

Sources

Figures move. The construction cost index is published monthly; check the current reading, and the fees regulation of the council you are building in, before signing a contract.
Build your buyer briefRead: renovating in Portugal, the process guide

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