Portugal: Overview
In Depth
- Overview
- Price History
- Rental Yields
- Taxes and Costs
- Tax on Rent (Example)
- Buying Guide
- Landlord and Tenant
- Inheritance
- Living There
- Useful Links
- Country Statistics
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Global Statistics
Regional Statistics
- Sq. M. Prices
- Rental Yields
- Rents
- Price/Rent Ratio
- Price/GDP per Cap
- Buy/Sell Costs
- Rental Income Tax
- Capital Gains Tax
- Price Change 1 yr
- Price Change 5 yrs
- Landlord & Tenant Law
- GDP Per Capita
- GDP/Cap Growth 1 yr
- GDP/Cap Growth 5 yrs
- Economic Freedom
- Ec. Freedom 5 yrs
- Competitiveness
- Property Rights Index
- Currency +/- Value
- Taxes on Residents
House prices falling in Portugal
House prices in Portugal fell 4.8% during the year to September 2008, according to the Instituto Nacional de Estatistica (INE), after moderate increases from 2002 to 2005, and stagnation 2006-2007. When adjusted for inflation, house prices actually dropped 7.7% over the year to September.
In Metro Lisbon, prices dropped 5.7% during the year to September 2008. In the Algarve, a favorite top-end tourist destination, property prices dropped 4.4% over the same period. From a peak of €1,245 per sq. m. in Q4 2006, the average dwellings prices dropped 6.5%, to €1,164 per sq. m. in Q3 2008.
The house price boom that swept through most of Europe and the developed world from 1995 to 2006 missed Portugal. From 2001 to 2006, average property prices rose 100% in Spain, compared to a mere 17% in Portugal.
• In 2006 Portugal’s house prices rose 0.65% (a fall of 1.8% in real terms).
• In 2007, Portugal’s house prices fell 1.2% (a fall of 3.7% in real terms).
• The prices of dwellings rose modestly by 16.4% (8.2% in real terms) from 2002 to 2005.
There are no restrictions on foreign property ownership in Portugal and transaction costs are generally low.
RENTAL YIELDS
Last Updated: Sep 01, 2009
Tolerable rental yields but not enormously attractive
Is Lisbon a good place to buy investment property? Apartments in Lisbon are relatively inexpensive by European standards at €2,393, and villas are even more attractively priced, with average per square metre (sq. m.) prices of €1,825.
However as an investment property destination, Lisbon remains problematic. A property investment which brings a gross rental yield of 4.8%, as apartments in Lisbon do, is tolerable, but not enormously attractive. Quite aside from the various regulations which discourage property owners, and the country’s recently very low rate of growth (which can be read about on other pages) - factors which should discourage property investment.
The average (sq. m.) price of an apartment in the Algarve is €1,925. Villas average €2,581
Unfortunately, no rental figures are available for villas in Lisbon, so no investment return figures are available.
TAXES AND COSTS
Last Updated: Jan 16, 2008
Taxes range from moderate to high in Portugal
Effective Tax Rate on Rental Income |
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| Monthly Income | €1,500 | €6,000 | €12,000 |
| Tax Rate | 13.2% | 13.1% | 13.1% |
| Click here to see a worked example | |||
Source:![]() |
Disclaimer | ||
Rental Income: Net rental income is taxed at a flat rate of 15%, withheld by the tenant. Repairs, maintenance expenses, and local taxes are deductible from the gross rent leading to an effective tax rate of around 13%.
Capital Gains: Net capital gains are taxed at a flat rate of 25% in Portugal. Acquisition costs are deducted from the gross selling price of the property.
Inheritance: There are no inheritance and gift taxes in Portugal.
Residents: Resident individuals' worldwide income is subject to tax at rates from 10.5% to 40%.
BUYING GUIDE
Last Updated: Mar 28, 2007
Buying costs in Portugal
range from low to moderate
Roundtrip transaction costs, i.e., the cost of buying and selling a property, range from 5% to 16%. Significant costs include the real estate agent’s fee (3% to 5%, plus 21% VAT), transfer tax (effective rate at 6% maximum) and legal fees (1% to 2%).
LANDLORD AND TENANT
Last Updated: Jul 20, 2006
Portuguese law is strongly pro-tenant
The law in Portugal is still strongly pro-tenant, despite substantial changes brought by the New Urban Lease Act.
Rent: The amount of the rent can usually be freely agreed between the parties, with the exception of low cost housing. Rent reviews can also be freely agreed (although they must take place annually), and, with careful drafting, cost-of-living rent increases and suchlike can be agreed.
Tenant Security: The parties may stipulate fixed-term contracts, but they must have a minimum initial term of five years, and there are automatic and consecutive extensions of three years. In the absence of such a fixed term stipulation, the lease agreement will be considered open-ended. Open ended contracts were previously much like ‘tenancy for life’ agreements and are very difficult to terminate.
ECONOMIC GROWTH
Last Updated: Jan 26, 2009
Portugal’s growth is at Europe’s tail end
Portugal, with a population of around 10.6 million, is one of the most globalized countries and has one of the highest quality of life in the world. However, the country has also the lowest GDP growth in Europe.
Portugal continued to experience weak economic growth in 2008, impacted by the global economic crisis. GDP growth was again weak, at 0.5%, after 1.9% growth in 2007 and 1.3% in 2006.
From 2001 to 2005, annual average GDP growth was 0.8%. Portugal’s GDP per head was US$21,019 in 2007, the lowest in the euro area, next to Malta.
While the adoption of the EU ushered a period of economic expansion to some countries, Portugal failed to take full advantage of opportunities created by EU membership. The strong euro vis-à-vis major currencies has impacted the country’s competitiveness.
Portugal's economy is based on traditional industries such as textiles, clothing, footwear, cork and wood products, and beverages (i.e. wine). Its comparative advantage before was low labour costs, but it faces huge competition from Central Europe and Asia.
Productivity is weighed down by low human capital levels, heavy administrative burdens on firms, restrictive labour market regulations and lack of competition in key sectors of the economy.
A huge fiscal deficit, at 6% of GDP in 2005, prevented the use of expansionary fiscal policy to stimulate the economy.
The Socialist Party led by Jose Socrates regained power in the February 2005 parliamentary elections - their first absolute majority since the return of democracy to Portugal in 1974 – and have prioritized reviving the economy.
The government addressed the deficit by raising VAT from 19% to 21% (it has subsequently been cut to 20%, from July 2008). It restricted public sector wages, increased the minimum retirement age to 65 from 60, reduced sick pay sharply, and in January 2006 increased the top marginal rate of income tax to 42%, from 40%. The reforms are paying off; the fiscal deficit was down to 2.6% of GDP in 2007.
However in 2009, the budget deficit is expected to rise again to about 3.9% of GDP (above the EU's limit of 3%), after the government unveiled an economic stimulus package worth €2.2 billion, in a bid to limit the effect of the global economic turmoil.
RESIDENTIAL PROPERTY AROUND THE WORLD
Asia & Pacific
Looming housing slump in China
America & Caribbean
The great U.S. housing market crash
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| RESIDENTIAL PROPERTY FACTS | |
| Price (sq.m): €2,848 For a 120 sq. m. property, usually an apartment. | Rental Yield: 3.63% For a 120 sq. m. property, usually an apartment. |
| Rent/month: €1,033 For a 120 sq. m. property. | Income Tax: 13.25% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income. |
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Roundtrip Cost:
13.7%
The total cost of buying and then reselling an apartment. Includes: * all transaction taxes and charges: * lawyers' and notaries' fees * agents' fees Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000. |
Cap Gains Tax: 11.3% Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation. |
| Landlord & Tenant Law: Pro-Tenant Rating is based on a detailed study of each country’s law and practice. | |
AUGUST 2009
- Portugal is prospering - This is Money
DECEMBER 2008
JUNE 2008
JANUARY 2008
- New airport opens up Portugal’s Blue and Silver Coasts - World of property
SEPTEMBER 2007
- Overseas property: Get sporty in Portugal - Telegraph UK
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