Is Portuguese real estate worth buying right now? (2022, Q3) » FINCHANNEL

Portuguese real estate has long been a sought-after commodity for UK, US, and foreign citizens – and for good reason. A generous climate and a gateway to European citizenship are two primary motivators for investors.

However, between 2020 and 2022, demand dramatically exceeded supply and caused the price of Portuguese real estate to increase dramatically. In fact, inflation-adjusted square meter prices in the country have since risen to their highest point in 30 years.

Global Property Guide has provided some analysis of the market.

1) Current and historical house prices in Portugal

As stated above, square meter prices in Portugal have risen considerably in the last two years:

Peak growth began in 2021, fueled by both local and foreign buyers.

According to numbers released by INE (the Spanish Institute of National Statistics), investment from EU nationals increased by 72.3%, while capital from non-EU rose by 79.1% (2021).

Furthermore, between 2015 and 2022, new build square meter prices have increased by over 90%. Adjusting for inflation, this statistic settles at an 80% growth.

The latest growth was likely inflated by Portugal’s “Golden Visa” program, alongside the Covid-19 pandemic and Ukraine-Russia War.

Currently, Portuguese mortgage interest rates are increasing. This is mostly due to Euribor, which is predicted to reach somewhere between 4-5% in 2023. Most mortgages in Portugal are “floating” – this means interest rates are usually 1-2% plus Euribor.

It could be good news for the buyers to acquire some reasonable priced properties when prices start to go down. Due to people being forced to sell their properties because of increased loan repayments.

However, if the inflation keeps being high in the EU and Portugal, the property prices could well keep rising as even more investors are looking to lower their cash positions.

How much does it cost to buy an apartment in Portugal?

Below is a “price guide” for Portugal right now.

These are median prices calculated by using Idealista listings.

Studio apartments:

Lisbon: €250K – €300K
Porto: €170K – €220K
Faro: €120K – €160K
Funchal (Madeira): €140K – €160K
In Algarve, most 4-5 bedroom villas are in the $800K – $1.4M range, though the vast majority require a degree of renovation. New builds or renovated villas commonly exceed $1.5M.

2) Gross long-term rental yields

We compared current residential apartment listings to calculate gross rental yields for different apartments in Portugal – from studio apartments to 3+ bedroom properties.

According to our research, Portugal has an average gross rental yield of 5.20% – this figure rises to 7% for long-term rentals in some locations.

An example: a studio apartment in Lisbon can be bought for roughly €280K.

Such a property, in good condition, can be rented out for €1,150/month and have a gross rental yield of 4.8% (pre-tax). Keep in mind that net yields are lower due to letting agent fees, taxes, and other process costs.

 

3) Short-term rental market overview

Lisbon, Porto, and the Algarve are the most lucrative areas for short-term rentals and Airbnb.

In the first nine months of 2022, considering all means of accommodation (tourist accommodation establishments, camping and holiday camps, and youth hostels), there were 22.6 million guests and 61.3 million overnight stays registered.

Although, it’s worth noting that Lisbon has recently implemented Airbnb restrictions, with prospective hosts now requiring a license for their properties to be deemed legitimate. A further caveat is that the governing body has also stopped issuing said licenses – though there is hope for the program to continue soon.

Above is a showcase from Sintra (Lisbon) short-term market top properties according to AirDNA.

It’s not 100% accurate, but you can get a sense of what kind of yields you can expect from different parts of the world.

Each apartment is rented via Booking.com and Airbnb, and occupancy rates in the last 12 months have hovered around 80%.

Gross revenue would consequently be $95K/year, with the operating profit reaching $60K (pre-tax).

The property itself commands a purchasing price of $900,000.

4) Property related taxes

As a European country, purchasing property in Portugal is easy for foreign investors. The tax system, however, comes with more complications.

Buying tax (IMT): 1-8% (the more expensive the property, the more you pay).

Wealth Tax / Real Estate Tax:

Owners of properties worth over €600,000 must also pay Wealth Tax, or AIMI (Adicional Imposto Municipal Sobre Imóveis). Annual rates begin at 0.7% of the property’s value, increasing to 1% for properties worth over €1,000,000 and 1.5% for those valued over €2,000,000. Commercial properties are exempt from this tax.

Other fees

Lawyer fees: 1-2%
Land registry + Notary: 1%
VAT: 23% (if applicable)

Overall, Portugal’s tax system is certainly not the cheapest in Europe, but it does have many good aspects.

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