Investing in Portuguese property
Portugal’s attraction for international property investment has been growing. It was prompted by the government measures including the golden visa and retiree tax scheme, then boosted by Portugal’s swift recovery from the global financial crisis.
More recently, Lisbon and Porto’s growing stature as global cities – tech hubs and digital nomad hotspots – has continued the trend.
The tourist resorts are not over-developed and still have potential for growth, while Portuguese architects seem to lead the way in exciting, ground-breaking design.
And lastly, away from the hotspots it’s a country where you can still bag a bargain and a do a restoration project, adding value and even “flipping” a property.
Here, we’ll share an update on the Portuguese property market, pinpoint some key areas that are particularly investor friendly and share insight on how to best manage your property portfolio.
The Portuguese property market
Despite high interest rates in late 2023 and early 2024, forecasts for real estate investment in Portugal remain optimistic.
Demand remains high across the country, but especially in major cities like Lisbon, Porto and Funchal. The Algarve is also a hotspot for investors, especially those at the high end.
The renovation of older buildings, apartment constructions and hotel growth provide ample opportunities for investors looking for returns.
There are lots of developments in progress across Portugal which are highly popular in a range of sectors including student housing, healthcare, agribusiness and student accommodation, each offering multiple business opportunities.
Sustainability remains to be on the agenda for both buyers and sellers in Portugal, but there remains progress to be made regarding certifications.
Building a property portfolio in Portugal
Building a successful property portfolio in Portugal, there are ways to improve your chances of profitability. They include:
- Research the real estate market. It’s about supply and demand. What is the market? Where will the profit be derived? Who are the competitors? How can you add value? Check property styles in popular towns and cities to compare rental yields to discover the most attractive type of home to rent out.
- Is it legal? There are many new laws to protect against the encroachment of AirBnb and other short-term rentals. Ensure your independent lawyer can guide you through the process and ensure all legalities are handled correctly. It is vital to follow all legal procedures for renters.
- Money: Analyse the costs and benefits. Create a plan for your investment, accounting for all costs, especially taxes, legal fees, maintenance, and property management fees if required.
- Property selection: Select properties that align with your ongoing investment goals. Are you seeking long-term capital growth or rental income?
- Diversity: Consider diversifying your real estate portfolio to help spread risk.
- Regular review: It is wise to regularly review your investment portfolio with a financial advisor to assess the performance of your properties, to ensure they align with long-term goals.
Portuguese rental yields: What to expect
Average gross rental yields in Portugal are around 5.5%. Based on the average annual yield, if you bought a €200,000 apartment, you could expect €15,000 per year in rental income.
For apartments, the average rental yield was as follows (highest to lowest):
- Sétubal – 6.5%
- Porto – 5.5%
- Aveiro – 5.3%
- Faro – 5.2%
- Braga – 5.2%
- Lisbon – 5.10%
Legal obligations and regulations
As an international investor in Portuguese real estate, it’s important to register your property with the land registry office to protect your legal rights as the owner. This is usually done once the final contract has been signed.
Should you wish to let out your Portuguese property, you will need to obtain a Alojamento Local (AL) license for either short-term or long-term lets. Obtaining an AL license used to be relatively straightforward, but recent regulations have tightened the process.
Closely analyse local laws before you buy as different municipalities in Portugal have varying rules regarding short-term rentals. Some areas may restrict or prohibit AL licenses altogether. Check with the local municipality to understand specific zoning regulations and any limitations on short-term rentals.
AL income is subject to taxation. Property owners must declare their rental income and pay taxes accordingly. Each property must have only one AL license and it must be renewed periodically.
The role of a property management firm
If you plan to let out your property in Portugal but won’t live there or in the country, you will need to employ a management firm.
For long-term lets it may be possible to to manage the property from overseas, but you’ll need a reliable network of contacts for emergencies such as neighbours, plumbers and electricians.
A property management company can screen tenants, organise maintenance and arrange for cleaning and regular upkeep.
Short-term lets require considerably more effort, with turnovers in just a few hours to make the property ready for the new visitors. This role includes weekly turnovers, cleaning, key management, inventory, and handling of any issues that may come up. This is crucial as guest reviews can greatly impact your rental property’s success.
Although these costs can be substantial, generally around 20% of your rental income, they should be considered a strategic investment for absentee owners. A way to lower this cost would be employing someone you know to act as the property manager, however things can get messy if problems arise, particularly with friends and/or family, so bear that in mind.
Currency services
If managing a Portuguese property from overseas, you will likely have ongoing costs to account for in euros for maintenance, utilities and other bills.
If your home currency differs from the euro, you can arrange to both receive and pay out the money from a Portuguese bank account to save money.
However, if you make regular international transfers, you can save yourself time, stress and effort by using a currency specialist that offers a regular payment plan.
