Would an investment in Portuguese real estate be profitable? What city or region should you choose: Lisbon, Porto, Algarve or Cascais? What factors does the rent price depend on? Can you count on making a profit when reselling your Portuguese property after several years? What taxes do you have to pay when buying real estate in Portugal? What are the transactional costs? We answer these and other related questions in the text below.
Real estate market offers attractive opportunities for long-term investments. The prices for land lots as well as the buildings sitting on them will normally grow over time. The European real estate markets are especially stable demonstrating incessant growth.
In addition to the stability, some European countries offer the opportunity to obtain a legal residence permit in exchange for an investment in real property there. For example, the Portuguese golden visa is one of the most attractive and valuable products in the immigration market.
But what piece of property should you invest in? When deliberating the purchase of real estate in Portugal, you have to consider several important factors that include the property location and the related pluses and minuses, the transactional costs, the taxes, the profitability level, and so on.
Real estate in Portugal: the most attractive locations
If you are considering making a long-term investment, real property in Portugal should certainly be on the list of options that you are evaluating. The country is wonderful to live and work in or retire to.
The prices for apartments, villas, and other residential accommodations in Portugal are growing despite the pandemic. We have to admit, however, that the growth rate is lower at the moment due to the global situation.
The Portuguese legislation related to property rights is close to perfect. All the processes involved in the transfer of the rights go smoothly and the Constitution protects the property owner.
Foreign nationals face no restrictions when purchasing real estate in Portugal. The choice of property to buy is immense indeed. Let us briefly discuss some of the locations in the country that are most popular with foreign investors.
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Real estate in Portugal: Lisbon
The majority of foreign investors choose Lisbon when buying property in Portugal. This shouldn’t be surprising as the city is the capital of the country located close to the Atlantic coast. It has to be noted, however, that real property in Lisbon does not bring the highest return on investment in comparison to the property located in other regions of Portugal.
First of all, the prices for real property are high in Lisbon. Residential accommodations sell at 10,000 euros per square meter on average, which is very much the same as the cost of property in Madrid and Barcelona. At the same time, Spain is generally a more expensive country than Portugal.
|The capital of Portugal is a modern city with a wonderful infrastructure. Besides, it opens fantastic opportunities for innovative businesses supporting promising startups and offering highly qualified specialists in many areas. The living standards in Lisbon are exceptionally high and the general atmosphere is incredible. |
The public transportation system is superb in Lisbon. Subway lines run in all directions, cable railways, city buses, and ferries are readily available. You can easily move around the city even if you do not have a car.
The cultural life is bright and diverse in Lisbon. The city is one of the most attractive European capitals with a large number of theaters, museums, historic monuments and other places of interest. Various festivals are often held in Lisbon. Its residents also have a wide choice of restaurants, cafes, and bars serving different national cuisines. Wherever you live in Lisbon, you will always find a nice place to eat nearby.
Each city district has its own distinctive architecture and special charm. The types of investment objects found in Lisbon are plentiful: you can certainly find a piece of property that appeals to you. What is also important is that the demand for real estate is always high in Lisbon so you will be able to resell your property without much trouble.
|In addition to the high cost of real property in Lisbon, the city is densely populated and full of tourists throughout the year. Thefts and robberies are part of everyday life in Lisbon. This means that if you purchase property in the city, you will have to take some security measures as well.|
Real estate in Portugal: Porto
Porto is a relatively large city with well developed industrial and agricultural sectors. The property prices in Porto are much more attractive. They vary between 2,500 and 5,000 euros per square meter. Local realtors claim that you can count on receiving 12 to 14 euros for every 100 euros spent if you purchase real property in a popular tourist district.
If things go well and the current trends continue, 100,000 euros invested in real estate in Porto will bring you 260,000 euros in twenty years’ time. Thus you gross profit over this period will be 260 percent.
|In addition to the attractive property prices, Porto boasts considerable popularity with foreign tourists, which makes rental prices in the city grow. The transportation system is also superb there.|
The number of visitors to Porto has increased greatly since low-cost airlines came to the city. Before the current crisis struck, the local airport used to service tens of millions of passengers every year.
The city is quite compact so many places of interest can be reached on foot. City buses and taxis are also readily available.
Going sightseeing is a must when you are in Porto. The Tower of Clerigos), the Crystal Palace gardens, and Serra do Pilar are among the most popular tourist attractions.
The foreign investor will have an easier time finding a nice piece of property in Porto than in Lisbon. Another advantage of the coastal city is the availability of qualified personnel while the cost of labor is lower in Porto in comparison to Lisbon.
|Buying a piece of real property in Porto is much easier than selling it. The local real estate market is not as vibrant as it is in Lisbon. That is to say, you may have a hard time reselling your property located in Porto.|
Real estate in Portugal: Algarve
Algarve is a popular tourist region with multiple villas and hotels at the coast of the Mediterranean Sea. Many foreigners like to spend summers in the region. Purchasing real property there would be a very good idea if you are planning to let it on a lease (short-term or long-term).
Occasionally, you can find very attractive offers as far as real property for sale in Algarve is concerned. If the property owner has been unsuccessful during the previous summer season, he/ she may want to sell it at a discounted price.
|Buses run between the cities and towns of Algarve on a regular basis. Public transport is the main means of transportation in the region.|
There are multiple natural beauties in Algarve while the number of tourists there is not so large. Praia da Falésia beach and the cape of St Vincent are certainly worth visiting. Again, investing in real property in the region makes good sense if you intend to rent it to tourists.
|Liquidity is probably going to be an issue if you buy real property in Algarve. If you want to resell your property later, you will have to be patient when looking for a buyer. We recommend that you consult a reliable local real estate agent before putting money into property in Algarve.|
Real estate in Portugal: Cascais
Cascais is a coastal city near Lisbon. It is a popular tourist destination. The seaside view are highly enjoyable and the area is considered to be among the safest ones in Portugal.
If you wish, you can buy a villa or an apartment in Cascais located close to the marina where you can park your yacht. You have to bear in mind, however, that property near the marina or the city center is going to be more expensive.
Cascais would be a perfect place to buy property in Portugal if you are looking for something elite. You have to weigh all pros and cons, however, before making the decision. InternationalWealth experts will be happy to discuss this investment opportunity with you in detail.
|Cascais offers a number of recreational activities to its residents as well as places to see. You must visit Museu Condes de Castro, Praia da Rainha and the Old City when in Cascais. The city is located close to Lisbon and it is highly popular with foreign tourists. This means that reselling your property there is going to be a snap. |
Whether you are planning to invest in Portuguese real estate in order to relocate to the country, or to diversify your assets, or to earn some profit, you can rest assured that the real property in Cascais will grow in value over time.
|The prices for real property are quite high in Cascais. In addition, the transportation system is not so advanced in the area.|
What profit can you count on when purchasing real property in Portugal?
You can derive profits from your Portuguese real estate in two ways. First, you can rent it out to tourists, students, or permanent residents. Second, you can gain some profit when reselling your property at a higher price after a few years. You can also combine these two methods of deriving profits from your property thus maximizing their amount. However, you have to remember that there are also some costs involved whichever method you choose. There are transaction costs and taxes to pay.
Transaction costs involved in purchasing real property in Portugal
Any purchase agreement will entail certain transactional costs that vary depending on the price of the property and sometimes on the type of the building. Normally, these costs will constitute between 2.4% and 10.8% of the contract price. The due payments include the following ones:
- Tax on property rights transition (Imposto Municipal sobre Transmissôes Onerosas de Imóveis; IMT) and stamp duty: These payments are due whatever piece of property you buy in Portugal. The taxable amount is defined by the property cadastral value or the contract price (the higher of the two).
- Lawyer’s fee: The Portuguese lawyer will help to solve all the issues that may arise in the process of purchasing property in the country. He or she will ascertain that all the formal requirements have been fulfilled and the deal is perfectly legal. At the same time, lawyers charge fees.
- Notary fee: The documents that confirm the transition of property rights from one person to another need to be notarized and thus a notary fee is due.
- Mortgage fee: If the buyer takes out a mortgage to help him/ her cover the cost of the property, a mortgage fee is due and its amount will depend on the size of the mortgage.
- Registration fee: When the purchase deal is completed, the Land Cadaster will issue official documents certifying the possession of the piece of property by the buyer.
Taxes involved in purchasing real property in Portugal
You have to bear in mind three taxes associated with purchasing property in Portugal. These are the real property tax, the rent tax, and the capital gains tax. Please find detailed information about the taxes below.
- The rent tax: If you are planning to let your Portuguese property on a lease, you have to be prepared to pay the rent tax. The tax rate is 15% and it is flat. Taxable income is defined by subtracting the maintenance costs from the rent pay received. Insurance payments, revenue charges (taxes), and repair bills are included in the maintenance costs. Interests on the mortgage acquired when purchasing the property are not included in the maintenance costs.
- The municipal real property tax: Every real property owner in Portugal has to pay the municipal real property tax (Imposto Municipal sobre Imóveis, IMI). Every municipality defines its tax rate. The IMI is payable at the end of every fiscal year by the official owner of the property whether it is a natural person or a legal entity.
- The capital gains tax: In accordance with the Portuguese legislation, you have to pay the capital gains tax when you sell your real property in the country at a higher price than you paid when buying it. The difference between the purchase price and the sale price is taxable. In this connection, we must note that the tax rate will depend on the fiscal residence status that the property owner has. To become a fiscal resident of Portugal you have to spend more than 183 days in the country during the calendar year. If a non-resident (non-fiscal resident) of Portugal is selling his/ her property at a profit, the capital gains tax is as high as 25%. If the money received from the sale is reinvested in Portugal, only half of the capital gained is going to be taxed. Please apply for a consultation with an InternationalWealth expert to clarify the tax matters in detail.
Short-term and long-term rent
Let us start by considering renting your property to tourists for short periods of time (Airbnb type of business).
Before the coronavirus pandemic broke out, the tourist sector generated up to 10% of the national GDP in Portugal. No wonder the tourist industry in the country knows how to make some money: there are multiple hotels and other tourist facilities there.
According to the National Statistics Institute (Instituto Nacional de Estatística; INE), the short-term rental property occupancy rate in most popular tourist locations is 78% during the high season. The average price of a room is 127 euros per day in Lisbon and 105 euros per day in Porto.
Internet platforms such as Airbnb and Booking will transfer the rent pay to the owner’s account. They charge between 3% and 15% of the rent pay for their services. You can also hire a management company to take care of the clients for your rental apartment or villa. The company will provide the full range of services beginning with picking the client at the airport and ending with laundering the linen. Management companies charge between 20% and 30% for their services.
Practice shows that investments in rental accommodations in Portugal with the use of the Airbnb model can bring a net profit of around 7%.
You can also consider renting your Portuguese property to students.
Only 12% of the 113,813 students living away from home in Portugal enjoy the benefits of public housing. Others have to rent their accommodation and pay the rent from their own pockets. Practice shows that renting rooms to students in Portugal can bring a profit of around 6%. The profit rate will depend on the size of the rental apartment and the number of rooms that it has.
You can also let your property in Portugal on a long-term lease.
The largest number of long-term rental agreements are signed in Lisbon. For this reason, you should look at the real property in this city if this is how you want to make your investment pay back.
According to the Global Property Guide information, apartments in Lisbon will generate between 4.5% and 6.7% of profit. Smaller apartments are normally more profitable than larger ones.
The rental price for an apartment in Lisbon is between 12 and 16 euros per square meter per month. The rental price for a villa is 9 to 11 euros per square meter per month.
The rental apartment profit rate in other regions of Portugal is medium to low. An apartment in Algarve, for instance, will bring you a 3.5% to 3.8% profit while a villa there will bring you only a 2.84 to 3.04 profit. The rental price for an apartment in Algarve is between 4 and 6 euros per square meter per month. Villa rent starts at 6 euros per square meter per month.
Thus, if the Global Property Guide information is correct, you should invest in Lisbon if you would like to earn profits from letting your Portuguese property on a long-term lease.
What are your chances to make a good profit from selling your Portuguese property after holding it in your possession for several years? Can you earn anything at all? Let us try to find an answer with the help of Instituto Nacional de Estatística and Global Property Guide data.
The Portuguese real estate market is still growing. However, the COVID-19 pandemic has had a serious impact on the market and the growth rates are lowering.
According to the Instituto Nacional de Estatistica, the cost of residential accommodations grew by 6.32% (6.56% in real terms) between November 2019 and November 2020 and reached 1,114 euros (US$ 1,381) per square meter. This shows that the growth rate has plummeted: prices grew by 11.16% over the same period a year ago.
The real property prices started growing in 2014 and they have been rising ever since. In 2015, they grew by 4.5%, in2016 by 4.8%, in 2017 by 4.6%, in 2018 by 6.1%, and in2019 by 8.3%.
As the tourist sector of the Portuguese economy is going through hard times, it is expected that the demand for real property in the country is going to be on the downturn over the next several years. At the same time, the mortgage conditions should remain as attractive as they are at the moment. It will probably be safe to claim that real property prices are going to grow slowly in Portugal in the near future.
Expert support in purchasing real property in Portugal
InternationalWealth team assists international business people, successful investors and other wealthy individuals in acquiring residence permits and full citizenship in various countries. The fastest way to become a legal resident or a citizen of a foreign country is by making an investment in the country’s economy and in particular, by purchasing a piece of real property there. Please contact us to arrange a personal consultation on the matter! Our vast experience in the business will certainly be of assistance to you.
What region of the country should I choose when investing in Portuguese real estate?
Lisbon and Porto are most popular with foreign investors buying property in these cities thus qualifying for legal residence permits in Portugal. Places like Braga and the suburbs of Lisbon, on the other hand, have attractive commercial and industrial property that will also make you qualified for a golden visa. If you would like to invest in resort property, you should certainly consider Algarve, which is a highly popular recreational region in Portugal. Whatever option attracts you more, you will be well advised to consult experts anyway.
How profitable can investments in Portuguese real property be?
If you let an apartment in Lisbon on a long-term lease, the profitability rate is going to be between 4.5 and 6.7 percent. The smaller the apartment, the higher the profitability rate. Apartments in medium-size cities such as Cascais or Oeiras, for instance will bring you 6 to 7 percent of profit.
What pitfalls should I avoid when purchasing real property in Portugal?
The subrogation rule applied in Portugal ties all loans and other encumbrances (taxes, utility charges, etc.) to the property, not to the property owner. Thus, if you do not use the services of an experienced lawyer when making the purchase deal, you risk ‘buying’ some debts together with the piece of property. Legal issues may also arise if the property is located in a rural area or it has multiple owners living in different countries.