How to invest in real estate in Portugal with the profit
Portugal’s house price boom continues to be high
Portugal’s house prices continue to rise rapidly, fueled by low interest rates and improving economic conditions.
Property prices in Portugal increased by almost 8 percent (7.7 percent in real terms) y-o-y in November 2019 to an average price of EUR 1.312 (USD 1.461) per square meter (sq. m.) on the basis of figures published by the InstitutoNacional de Estatistica (INE).
House prices in Portugal began to recover in 2014 and have been rising since then. House prices rose by 4.5 percent in 2015, 4.8 percent in 2016, 4.6 percent in 2017 and 6.1 percent in 2018.
In the metropolitan area of Lisbon, property prices increased by 9.5 percent (9.2 percent in real terms) from the previous year compared to November 2019 to an average of EUR 1.631 (US$ 1.816) per square m.
Home prices increased in 23 of the 24 urban areas of the world. Sintra registered the largest rise of 18.3 percent in the year to November 2019, led by Gondomar (16.7 percent), Vila Franca de Xira (15.5 percent), Vila Nova de Gaia (15.3 percent), Amadora (14.8 percent), Matosinhos (13.8 percent), Braga (12.7 percent), Funchal (11.3 percent), Almada (11.2 percent), Odivelas (10.5 percent), Seixal (10.4 percent) and Maia (10 percent). Strong house price increases were also reported in Vila Nova de Famalicão (9.8 percent), Coimbra (9.2 percent), Guimarães (8.5 percent), Setúbal (7.8 percent), Barcelos (6.6 percent), Oeiras (6.3 percent) and Loures (6.1 percent).
Modest to marginal house price rises were seen in Cascais (5.6 per cent), Santa Maria da Feira (4.5 percent), Porto (3.3 per cent) and Lisbon (0.5 percent). Just Leiria reported a fall in house prices of 2.5 per cent in the year to November 2019.
By type of property:
- Flat prices rose sharply by 9.8 percent (9.5 percent in real terms) to an average of €1.402 (US$ 1.561) per square in November 2019.
- Villa prices rose by 4.2 percent (3.9 percent in real terms) to an average of €1,162 (US$ 1,294) per square in the year to November 2019.
Demand is still high. In the first three quarters of 2019, the total value of residential sales rose by 4.3 percent to €18.65 billion (US$ 20.82 billion) while the number of transactions remained stable at 132.246 units, according to INE. Clearly, the latest wealth tax levied in 2017, applied to higher valued properties, has in effect had a negligible impact on the luxury housing market.
The Portuguese housing market is expected to remain booming this year, with Moody’s Investors Service expecting house price rises of about 4 percent – a decline from fast price growth last year but still one of the biggest increases in the country.
“A sharp spike in house costs, although smaller than in previous years,” said Moody’s.
There are no limits on foreign ownership of land in Portugal and transaction costs are usually small.
Portugal offers a 5-year residence visa to non-EU residents who purchase at least € 500,000 worth of property, encourage holders to work or study and fly to Schengen countries. Within five years, they may qualify for permanent residency.
The Portuguese economy expanded modestly by 2% in 2019, with annual rises of 2.4% in 2018, 3.5% in 2017, 2% in 2016, 1.8% in 2015 and 0.8% in 2014, according to the European Commission. The economy is forecast to expand by 1.7% annually in the next two years.
Residential yields are good in Lisbon homes, varying from 5.4 percent to 6.2 percent
The property market in Lisbon is currently moderately priced. Comparatively, Lisbon home costs are among the lowest in Europe:
- 85 square meters (sq. m.) Lisbon apartments in the prestigious neighborhood will cost about EUR 200,000 to purchase.
- It’s 120 cube. m. The Lisbon apartment will cost about EUR 300,000 to purchase.
- It’s 250 square meters. Lisbon apartment will cost about EUR 840,000
How much are you going to earn? Apartment yields in the Lisbon District vary from 4.5 percent to 6.7 percent, with smaller units receiving more. There are decent returns, and the buying price is appealing for a capital city in Europe, although Lisbon is hardly at the heart of the matter. Villas in Lisbon have comparable gross rental returns.
Cascais apartments can achieve outstanding returns at 6.7 percent, while Oeiras homes can deliver remarkably strong returns at 6.15 percent.
In Faro, Algarve, at 120 sq. m. apartments costs an average of EUR 1 870 per square meter. or EUR 215,000. Apartments in Faro generate rental income of about 4.5 percent.
Our rental income figures presume long-term lets; short-term rentals can receive higher returns.
Conclusion: Lisbon looks amazing after several years on the back burner. Tourist interest in the center of Lisbon is immense, so it’s been possible to have an Airbnb for most of the year. Lisbon’s rental prices are comparatively among the highest in Europe, and Lisbon ‘s price-to-rent ratios are among the lowest in Europe.
Round trip transaction costs can be high in Portugal.
Taxes and Prices
Taxes vary from moderate to high in Portugal
Rental income: net rental revenue is paid at a fixed rate of 28%, withheld by the owner. Repairs, repairs and state taxes are excluded from the gross rent.
Capital Returns: Net capital gains in Portugal are paid at a flat rate of 28 percent. Acquisition costs are excluded from the total selling price of the land.
Inheritance: There are no inheritance and donation taxes in Portugal.
Immigrants: Residents’ worldwide wealth is subject to high tax rates, from 14.50 to 48 percent.
Buying costs in Portugal are moderate
Roundtrip transaction costs, i.e. purchase and sale costs, ranging from 5.69 percent to 20.15 percent. Significant costs cover land agent fees (3 percent to 5 percent plus 23 percent VAT), sales taxes (0 percent to 10 percent) and legal fees (1 percent to 2 percent).
Landlord and Tenant
Portuguese law is strongly pro-tenant
The law in Portugal is still strongly pro-tenant, despite the substantial changes brought about by the New Urban Lease Act.
Rent: The sum of the rent will usually be mutually decided between the parties, with the exception of low cost housing. Price assessments can also be readily negotiated (although they may take place on an annual basis) and, with proper planning, cost-of-living price rises and so on can be negotiated.
Tenant Security: The parties can enter into fixed-term contracts, which must have a minimum initial term of five years and mandatory and successive extensions of three years. In the absence of such a fixed term clause, the lease agreement will be deemed to be open-ended. Open dissolved contracts have traditionally been much like ‘Life Lease’ arrangements, and they are very difficult to terminate.
Moderate economic growth; growing finances
The Portuguese economy increased modestly by 2% in 2019 from the previous year, with annual rises of 2.4 % in 2018, 3.5% in 2017, 2% in 2016, 1.8% in 2015 and 0.8% in 2014, according to the European Commission.
The country’s six years of sustained development came after a string of desperate years. Portugal’s economy contracted by 0.9% in 2013, 4.1% in 2012 and 1.7% in 2011, according to the International Monetary Fund (IMF). In 2010, the economy increased by 1.7%, but in 2009 GDP fell by 3.1%, with overall annual growth of just 1.4% between 2004 and 2008.
The economy is expected to expand by 1.7% annually in the next two years, based on projections provided by the European Commission.
Portugal became the second euro zone nation to leave the bailout plan in May 2014, following three years of austerity. Portugal pursued the €78 billion (US$ 87 billion) rescue package in 2011, owing to the government’s failure to fulfill the debt payments.
Portugal also faces a huge public debt load of about 119.5 percent of GDP in 2019, an increase of 130.6 percent in 2014. Public debt is forecast to decline to 117.1 percent of GDP in 2020 and 113.7 percent of GDP in 2021.
The country’s fiscal deficit was 0.1 percent of GDP in 2019, sharply down from 0.4 percent in 2018, 3 percent in 2017, 1.9 percent in 2016, 4.4 percent in 2015 and 7.2 percent in 2014. In the 2020 budget, the government envisages a surplus of 0.2% of GDP – the first surplus in the country’s 45-year history.
Inflation was 0.4% in December 2019, down from 0.7% in December 2018 and 1.5% two years ago, according to INE. Inflation is expected to accelerate to 1.1% this year and to 1.4% in 2021, based on estimates from the European Commission.
Unemployment was 6.1 percent in Q3 2019, down from 6.7 percent in the same time last year and the lowest in 17 years. Portugal’s unemployment rate was about 12% between 2010 and 2018. It is projected to slip down to 5.9% this year and by 5.6% in 2021.