Portugal's real estate investment market attracts astute investors with its compelling blend of affordability, steady growth, and strategic location. In this informative guide, we uncover the hidden gems of the property landscape. We will analyse the country’s potential in the real estate market and empower you to make well-informed investment decisions that align with your financial goals.
Why are Investors so Interested in Portugal?
When it comes to investing in real estate, savvy investors carefully analyse a multitude of factors to make informed decisions. Understanding what drives an investor is crucial for navigating the complex world of property ventures.
The country’s economy has shown resilience and consistent growth, and despite all the challenges the struggles, it has managed to show an increase in multiple sectors, revealing also a favourable outlook for public finances. According to European Commission's Economic forecast for Portugal there is a deficit decreased to 0.4% of GDP in 2022.
Borders and ports are fully open for seamless trade with other EU member states. The country also boasts political stability with a democratically elected parliamentary government that warmly welcomes foreign business and investment, establishing an advantageous economic and regulatory environment that is conducive to foreign contribution – according to Internation Trade Administration’s opinion.
Reasons to Invest in Properties in Portugal
The country has emerged as an alluring financial destination, offering a thriving real estate market with a range of opportunities for investors. It not only contoured Portugal’s housing crisis but also showed a growing real estate market. The growing demand for long-term rentals, fuelled by a thriving tourism industry and an increasing number of international residents, creates a favourable environment for property owners.
The Portuguese government provides support for future investors, aiming to make their ventures. With the Practical Guide for Your Business, all entrepreneurs can consult all information needed. Also, according to AICEP (Agency for Investment and Foreign Trade of Portugal) and INE (National Statistics Institute), the country experienced a 2,2% GDP growth, 4,3% exports growth, 44% exports/ GDP, 8,7% gross fixed capital formation, and only 7,2% unemployment rate – information available at AICEP’s study on Economic Outlook.
Average House Prices on the Portuguese Real Estate Market
Whether you are considering an investment opportunity or planning to purchase your dream home, or even retiring in Portugal, make sure that you are well-informed regarding the average house prices and shed light on the ever-evolving dynamics of the local housing market.
The Portuguese residential market excelled in 2021, attributed to low unemployment rates, boosting the appeal of the residential sector. The market set new records, witnessing substantial growth in both the number of units sold (approximately 190,000 houses, +11% YoY; +5% vs. 2019) and the total sales volume (around €30 billion, +18% YoY; +12% vs. 2019) – Deloitte’s Property Index.
The country’s capital stood out significantly, with price levels reaching 306.77% of the national average. Lisbon is the sole city in this year's Property Index edition that surpasses the national average by over three times – Deloitte’s Property Index. According to INE's Housing Price Statistics at Local Level, housing prices in Portugal exhibited a growth of 3.4% compared to the second quarter of 2021. The Algarve, Lisbon Metropolitan Area, and Porto Metropolitan Area were the regions with the highest housing prices.
There was also a median rental increase of 10.6% for new contracts, while the number of new contracts decreased by 3.3% compared to the same period in the previous year. Among municipalities with over 100,000 inhabitants, rental prices were around: Lisbon (€14.13/m2, +22.4%), Cascais (€13.66/m2, +21.0%), Oeiras (€12.65/m2, +23.9%), and Porto (€10.64/m2, +16.3%), according to INE's study on Housing Rentals' Statistics by Location.
House Rental Yields in Portugal Vs. EU
It is important for investors to carefully specify their preferred location within the country, as rental yields, quality of life, and average incomes can vary significantly across regions. Comparisons with other European cities and countries are essential to assess Portugal's rental investment potential and attractiveness.
In the real estate market, there are favourable ventures and lucrative opportunities. Collaborating with trusted local experts increases the chances of success and enables investors to maximize returns on their Portuguese real estate ventures.
Overall, when relating earnings with real estate investment in Portugal, INE provides the following updated data: Housing Price Index (195.910), Transactions (€) of Housing Units (7.362.219), Licensed Buildings (2.342), Median House Rental Value €/ m2 of New Lease Agreements of Dwellings (6.91), Median Value €/ m2 of Dwellings Sales in the Last 12 Months (1.484), No. of Buildings (3.573.416).
These figures indicate the potential for solid returns on investment in the Portuguese rental market. The government's commitment to promoting innovation and attracting foreign transactions further enhances the country’s appeal as a destination for entrepreneurial ventures.
In EU countries, rental yields can be influenced by local regulations, economic conditions, market dynamics, quality of life between EU member countries, and factors such as language barriers, and higher cost of living in certain EU countries may offset the advantages of higher average incomes, affecting disposable income and investment opportunities.
Long-Term Vs. Short-Term Rental in Portugal
With stable income, reduced turnover, and a growing market, long-term rentals provide a solid foundation for investors seeking to maximize their returns and build a sustainable real estate portfolio.
According to Act No. 31/2012, measures have been put in place to boost the urban rental market. The law allows greater freedom in stipulating the rules regarding the duration of rental contracts, providing flexibility for both landlords and tenants. It also introduces a transitional regime for rental contracts established before the enactment of Law No. 6/2006.
From an investor's perspective, long-term rentals in Portugal offer promising potential. According to data from INE, the country has experienced a steady increase in rental prices. Lisbon Metropolitan Area (€10,38/ m2), the Algarve (€8,06/ m2), Porto Metropolitan Area (€7,62/ m2) and Madeira (€7,54/ m2) experienced a steady increase in rental prices on new leases contracts in Portugal. The average annual rental yield in major cities like Lisbon and Porto is estimated to be around 5% to 7%, making it an attractive option for investors seeking stable and consistent returns. (APEMIP’s Study on the long-term rental Market in Portugal).
The market’s demand for short-term rentals is robust, thanks to the country's popularity as a tourist destination, a situation that has been recognized by the government. According to Decree Law 128/2014, the dynamics of the accommodation market led to the emergence and proliferation of new accommodation options. This trend highlighted the need for an updated and specific legal framework to regulate these new realities. The creation of a dedicated legal regime is essential to address the unique circumstances and fiscal implications associated with these evolving accommodation trends.
To investors, short-term rentals in Portugal offer a lucrative opportunity supported by data from the Portuguese Tourism Board (Turismo de Portugal). The average occupancy rate for short-term rentals in popular cities like Lisbon and Porto is consistently high, reaching up to 80% or more during peak seasons. Additionally, according to Turismo de Portugal, short-term rental properties in Lisbon can generate an average annual gross yield of 5% to 8%, while in Porto, the range is between 6% and 10%.
Portugal Property Investment: In Which Area Should I Invest?
Estimably, the number of non-resident tourist arrivals into the country has reached 9.6 million, an increase of 48.4% compared to previous years – INE's 2021 Tourism Statistics. Main investment locations include Lisbon, Porto, the Algarve, the Silver Coast, and other regions that have witnessed increased purchasing activity due to the Golden Visa programme. These locations represent a lucrative opportunity in Portugal's real estate sector, as the following numbers illustrate an increase in the total of real estate economic activity*: 40.792 to 56.739 in a 5-year time – source PORDATA. * The act of buying and selling real estate, such as residential, non-residential buildings and land, through a company established in the national territory.
Ranked as the third most expensive city in Europe, presents a secure and profitable investment opportunity, especially in areas like Baixa, Chiado, and Avenida da Liberdade. (Source: INE – Housing Price Statistics at Local Level). Only the Santo António district had median housing prices above 4,500 €/ m2, reaching 5,455 €/ m2. Several other districts, including Parque das Nações, Avenidas Novas, Alvalade, Belém, Campolide, and São Vicente, had median prices above the city average of 3,427 €/ m2. (Source: INE – Housing Price Statistics at Local Level).
The real estate market remains highly active and shows no signs of significant cooling off. INE reports a growth of house value houses sold, by a higher rate of 44.4%. The average housing prices are around 3,271 €/ m2, surpassing the city's average of 2,412 €/ m2. Bonfim had lower prices of 2,293 €/ m2, and Cedofeita had higher prices of 2,732 €/ m2, compared to the municipality. (Source: INE – Housing Price Statistics at Local Level).
A region that attracts tourists from all over the world, making it an ideal location for short-term rental properties. Many facts make the Algarve a great region for a guaranteed return on investment, including numerous world awards attributed to the Algarve, Europe's Leading Beach Destination 2023. The Golden Triangle (Vilamoura, Almancil and Quinta do Lago) is an investor’s paradise. The Algarve sub-region's house prices also remained above the national average, 2,339 €/ m2. (Source: INE – Housing Price Statistics at Local Level).
The Silver Coast
A region with natural beauty, and a laid-back lifestyle, with its affordable property prices, lower than in the Algarve, but still with a beautiful coastline. This region presents a compelling investment opportunity in real estate. Areas such as Óbidos, Nazaré and Peniche offer a range of venture options, including apartments, villas, and townhouses – the Oeste Region/ Silver Coast leads the way with a 12.6% increase. (Source: INE – Housing Price Statistics at Local Level).
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Portuguese Real Estate Investment: Taxes & Fees
By understanding the taxes and fees involved, investors can make informed decisions. For Propriety Acquisition, the costs are Property Transfer Tax (IMT), levied on property transfers, with rates varying based on property value and buyer status; the Annual Property Tax (IMI), a local tax based on property value; the Stamp Duty (IS), applied to property deeds and contracts.
Other important information: Property Management Fees; Capital Gains Tax; Financing and Mortgage Costs; Currency Exchange Considerations; Property Insurance; Market Research and Due Diligence. For an overview of the Portuguese Tax System and useful forms, you can find all information at the Portuguese Tax Authority (AT).
Portugal Investment Programmes & The Golden Visa
Foreign investors can leverage specific programmes designed to facilitate their journey and secure residency. These programmes include the Golden Visa & Investment Programmes and the Non-Habitual Resident Program (NHR).
Golden Visa & Investment Programmes
The Portugal Golden Visa programme offers foreign investors the opportunity to obtain residency through real estate ventures. For a minimum investment of €500.000 in real estate located in a low-density region, investors can qualify for the Golden Visa. The property must be at least 30 years old and eligible for touristic, commercial, or residential use. Alternatively, there is a lower investment option of €350,000 for properties requiring rehabilitation. Benefits of the Golden Visa include residency rights, visa-free travel within the Schengen area, and access to healthcare and education systems.
Mátria Co-working Space presents an exceptional and exclusive opportunity located in the vibrant city of Lisbon, making it eligible for the Golden Visa Programme. This remarkable development offers a range of luxurious amenities, including both shared and private work areas, concierge services, private parking facilities, a state-of-the-art gymnasium with changing rooms, and inviting terraces, among many other conveniences. This investment opportunity is brought to you by Portugal Homes and falls within the €350K Portuguese Golden Visa investment category.
Non-Habitual Resident Programme
The NHR serves as an incentive for foreign professionals and investors to choose our country as their base, enjoying better tax conditions while making a positive impact on its economy and society. This special tax status provides significant benefits, including exemptions on global income and a flat tax rate of 20% on income earned in Portugal.
Buying & Investing in Real Estate in Portugal as a Foreigner - What Is Required?
Foreigners planning to purchase a property must obtain a Portuguese Tax Identification Number (NIF) from the local tax office. This number is required during the property acquisition process. Portugal offers investment programmes for non-EU citizens seeking residency allowing investors to obtain residency, and provides an alternative pathway for residency through investment, without a specific minimum venture threshold – contributing to its economic growth.
Portugal Property Investment: Is it Worth it?
The country's strong rental market provides consistent income potential, supported by appealing taxation policies, and a stable real estate market. Considering the quality of life, rental income potential, and future growth prospects, Portugal is an appealing destination for real estate investors. By staying informed and working with local experts, they can maximize their returns in the Portuguese market. Before you make your decision, consult Portugal Homes. Our team of real estate professionals is dedicated to helping you find the investment that better suits your demands. With a distinguished and varied portfolio, Portugal Homes will surely exceed your expectations and provide you with guidance through the process.
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