Is buying a property in Portugal a good investment?

Beyond Portugal’s seven beautiful regions and relaxed lifestyle, is buying property a smart financial move? 

Captivating foreign investors with its climate and investment opportunities, real estate investments in 2023 accounted for over half of the FDI in Portugal, totaling 3.9 billion euros—a 22% increase from 2022. Yet, owning property in this country comes with its own set of challenges.  

In this guide, we look into the intricacies of Portugal's real estate market, uncover potential pitfalls, and explore why securing a mortgage as a non-resident might be a smart move.

What’s the property market like in Portugal?

Portugal's property market has been thriving, particularly in popular regions like Lisbon, Porto, and the Algarve. The market is projected to see property values rise by 8.7% in 2024, indicating strong growth and continued investor confidence. 

Despite this growth, Portugal remains more affordable than other Western European countries. 

The demand for luxury real estate and investment properties (short-term rentals and vacation homes) remains strong, particularly in coastal areas and tourist hotspots. The country welcomed over 30 million guests and saw 77 million overnight stays in 2023, further boosting the property market. 

This is mostly due to the country offering a combination of factors that contribute to the appeal of the Portuguese property market:

• Quality of life: Besides a mild climate, beautiful landscapes, and a relaxed lifestyle, Portugal is a safe country with a strong sense of community, making it ideal for retirees and families. 
• Tax incentives for non-residents, including the Non-Habitual Resident (NHR) status, which can provide significant tax reductions for up to ten years.
• Investment opportunities: A strong tourism industry and a growing digital economy propelled the real estate sector. Additionally, the government's supportive policies, such as tax incentives for foreign retirees, have significantly enhanced the investment landscape​. 

Property prices in Portugal vs. Spain

As the interest in investing in overseas property grows, comparing property prices in Portugal and Spain becomes increasingly relevant. This comparison sheds light on the differences in affordability and desirability between these two European destinations. 

The table below provides an overview of the average prices per square meter in popular cities, offering valuable insights for potential investors considering these dynamic real estate markets.

While Lisbon and Porto have seen significant price increases, they remain more affordable than Madrid and Barcelona. The Algarve, with its stunning coastline and sunny weather, offers competitive prices compared to popular Spanish coastal cities like Malaga.

Pitfalls of buying property in Portugal

While investing in Portugal's property market has its advantages, there are potential pitfalls to consider:

• Bureaucracy. Buying property can be complicated due to bureaucratic hurdles which is why it is essential to work with local experts who can navigate these complexities.
• Property taxes, including IMT (Property Transfer Tax) and IMI (Municipal Property Tax)
• Renovation costs. Many properties, especially in historic areas, may require significant renovations. These can be costly and time-consuming.
• Market fluctuations. It's important to research and understand market trends before making a purchase.
• Legal issues. Ensuring the property has a clear title and is free from legal disputes is essential. Conducting thorough due diligence is a must.

Is it hard to get a mortgage in Portugal as a non-resident?

Obtaining a mortgage in Portugal as a non-resident can be challenging, but is certainly possible. Buying a property with a mortgage can help you maximize your investment potential. It allows you to allocate your capital more effectively, increasing your return on investment. 

Most Portuguese banks offer various mortgage products tailored for non-residents. 

Typically, non-residents can borrow up to 80% of the property's value. The process involves providing financial documentation and a higher down payment than residents.

Compare Portuguese mortgage offers directly from abroad

Banco Santander, Millennium BCP, Caixa Geral de Depósitos, Novo Banco, and BPI are some of the top Portuguese banks offering mortgages for non-residents.

However, not living in Portugal can make investing in property and securing a mortgage from these banks more challenging. Fortunately, with Homevest, non-residents can easily compare and choose the best mortgage offers from leading Portuguese banks. 

Homevest simplifies the process by providing a digital platform where customers can:

• Request and compare mortgage terms from multiple banks
• Access expert advice tailored to their financial situation
• Secure the best mortgage deal without the need to be physically present in Portugal

Is buying a property in Portugal a good investment?

Ultimately, whether buying property in Portugal is a good investment depends on individual circumstances and investment goals. However, the country offers numerous benefits that make it an attractive option. 

According to Reorganiza, "Non-residents have been investing in Portugal, not only to live but also to invest. The reasons are simple: Portugal is a country with a good climate, safe, with quality infrastructure and where they enjoy tax benefits that they don't have in their country of origin.” 

However, potential investors should be aware of the associated challenges and do thorough research. 

Working with a specialist like Homevest can provide valuable insights and guidance throughout the buying process. 

Frequently asked questions 

1. What are the key factors to consider when investing in Portuguese property?

Essential factors include the location's desirability and potential for rental income or capital appreciation, understanding local property laws and taxes, evaluating market trends and potential risks, and considering the convenience and accessibility of financing options for non-residents.

2. What are the typical costs associated with buying and owning property in Portugal?

The costs associated with buying and owning property in Portugal include several one-time and recurring expenses:

Purchase costs

• Property price: Varies widely based on location, size, and type of property.
• IMT (Property Transfer Tax): Ranges from 1% to 8% of the property’s purchase price, depending on the value and type of property.
• Stamp Duty: Typically 0.8% of the property’s purchase price.
• Notary and Registration Fees: Usually around 1% of the property value, covering the cost of legal formalities.
• Legal Fees: Generally between 1% and 2% of the property value for the services of a solicitor or lawyer.

Ongoing Costs

• IMI (Municipal Property Tax): Annually charged at rates between 0.3% and 0.8% of the property’s taxable value (determined by the municipality).
• Home Insurance: Costs vary based on the property’s value and coverage.
• Maintenance Costs: Regular upkeep, repairs, and condominium fees (if applicable).
• Utilities: Monthly expenses for electricity, water, gas, internet, and other utilities.

3. What are the advantages of obtaining the Non-Habitual Resident (NHR) status in Portugal for non-resident property buyers?

The Non-Habitual Resident (NHR) status in Portugal offers significant tax benefits for non-resident property buyers. Key advantages include:

• Reduced Tax Rates: Under the NHR regime, qualifying individuals can benefit from a flat income tax rate of 20% on Portuguese-sourced income from specific professions.
• Tax Exemptions: Foreign-sourced income, including pensions, dividends, royalties, and interest, may be exempt from Portuguese taxation if it is taxed in the country of origin or if it could be taxed under the rules of a double taxation agreement.
• No Wealth Tax: Portugal does not impose a wealth tax, and there are no inheritance or gift taxes on assets passed to immediate family members.  

By using Homevest's digital services, non-residents can explore the Portuguese property market with ease, ensuring a more efficient investment process.  

Take the first step towards owning a piece of this beautiful country.

Sources used and checked in May 2024: 

1. The Portugal News 
2. Portugal Portfolio
3. Portugal Resident 
4. Numbeo
5. Portal das Financas  

We recommend obtaining professional or specialist advice before taking or refraining from any action based on the content in this article. The information in this article does not constitute legal, tax, or other professional advice from Homevest Limited. Prior results do not guarantee a similar outcome. We make no representations, warranties, or guarantees, whether express or implied, that the content in this article is accurate, complete, or up to date.