Market in Depth

Portugal's housing market remains strong

Lalaine C. Delmendo | February 12, 2021

Portugal's housing market remains strong. But the rate of house price increases is now moderating, as the COVID-19 pandemic has adversely affected the country's overall economy.

During the year to November 2020, residential property prices in Portugal rose by 6.32% (6.56% in real terms) to a median price of €1,144 (US$1,381) per square meter (sq. m) – a sharp slowdown from the previous year's 11.16% growth, based on figures released by the InstitutoNacional de Estatistica (INE).

Property prices in Portugal started to recover in 2014 and have been rising since. House prices rose by 4.5% in 2015, 4.8% in 2016, 4.6% in 2017, 6.1% in 2018 and 8.3% in 2019.

In Lisbon metropolitan area, property prices were up by 5.83% (6.06% in real terms) in November 2020 from a year earlier, to a median price of €1,507 (US$1,820) per sq. m.

By region:
  • In the North, the median property price rose by 6.54% y-o-y in November 2020 (6.77% in real terms), to €994 (US$1,200) per sq. m.
  • In the Center, property prices rose by 3.87% y-o-y in November 2020 (4.1% in real terms), to €833 (US$1,006) per sq. m.
  • In Alentejo, property prices rose by a modest 2.84% (3.07% in real terms) y-o-y to €833 (US$1,006) per sq. m.
  • In Algarve, property prices rose strongly by 7.28% (7.52% in real terms) y-o-y to €1,562 (US$1,886) per sq. m.
  • In the Azores, property prices increased 3.41% (3.64% in real terms) y-o-y to €940 (US$1,135) per sq. m.
  • In Madeira, the median property price rose by 2.55% (2.77% in real terms) y-o-y to €1,168 (US$1,410) per sq. m. in November 2020

By property type, apartment prices rose by 7.1% (7.34% in real terms) while house prices increased 4.61% (4.84% in real terms).

Demand has weakened due to the pandemic. During the first three quarters of 2020, the total number of housing transactions in Portugal fell by 7.7% y-o-y to 122,066 units while the value of transactions was almost steady at €18.65 billion (US$22.52 billion), according to INE. This is in contrast to annual growth of 1.6% in 2019, 16.6% in 2018, 20.6% in 2017, 18.5% in 2016, and 27.4% in 2015.

Construction activity is mixed. Licensed dwelling permits fell by 1.3% y-o-y to 24,031 units in the first eleven months of 2020, in contrast to annual average growth of 28% from 2015 to 2019. Completions, which may have already been started before the pandemic, increased more than 25% y-o-y to 12,604 units in the first three quarters of 2020.

The Portuguese economy contracted by a huge 8.1% in 2020 from a year earlier, following expansions of 2.2% in 2019, 2.6% in 2018, 3.5% in 2017, and 2% in 2016, according to the Banco de Portugal. The International Monetary Fund (IMF) and the European Commission (EC) are more pessimistic, believing that the economy has declined by 10% and 9.3%, respectively.

The economy is expected to grow by 3.9% this year and by another 4.5% in 2022, based on the projections released by Banco de Portugal.


There are no restrictions on foreign property ownership in Portugal and transaction costs are generally low.

Portugal grants a 5-year residency permit to non-EU citizens who buy a minimum of €500,000 worth of property, allowing holders to work or study, and travel to Schengen countries. They can apply for permanent residency after five years.


Analysis of Portugal Residential Property Market »

Rental Yields

Rental yields on Lisbon apartments good, ranging from 5.4% to 6.2%

Lisbon's property market is now reasonably priced. Comparatively speaking, Lisbon housing prices are among Europe's lowest:

  • an 85 square metres (sq. m.) Lisbon apartment in an elite area may cost around EUR 200,000 to buy.
  • a 120 sq. m. Lisbon apartment may cost around EUR 300,000 to buy.
  • a 250 sq m. Lisbon apartment may cost around EUR 840,000

How much will you earn? Apartment yields in Lisbon District range from 4.5% to 6.7%, with smaller apartments earning proportionately more. These are good yields and the purchase price is attractive for a European capital city, though Lisbon is hardly at the centre of things. Villas in Lisbon have similar gross rental yields.

Cascais apartments can generate excellent returns at 6.7%, while houses in Oeiras can generate surprisingly good returns at 6.15%

In Faro, Algarve, a 120 sq. m. apartment costs on average EUR 1,870 per sq. m., or EUR 215,000. Apartments in Faro return rental yields of around 4.5%.

Our rental yields figures assume long-term lets; short-term rentals may earn higher returns.

Conclusion: after many years on the back-burner, Lisbon is looking good. Tourist interest in the centre of Lisbon is enormous, so the option of letting via Airbnb is there for much of the year. Lisbon's rental yields are comparatively among the highest in Europe, and Lisbon's price to rent ratios are among Europe's lowest.

Round trip transaction costs can be high in Portugal. See our property transaction costs analysis for Portugal and Property transaction costs in Portugal, compared to the rest of Europe.

Read Rental Yields »

Taxes and Costs

Taxes range from moderate to high in Portugal

Rental Income: Net rental income is taxed at a flat rate of 28%, withheld by the tenant. Repairs, maintenance expenses, and local taxes are deductible from the gross rent.

Capital Gains: Net capital gains are taxed at a flat rate of 28% 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 progressive tax rates, from 14.50% to 48%.

Read Taxes and Costs »

Buying Guide

Buying costs in Portugal are moderate

Roundtrip transaction costs, i.e., the cost of buying and selling a property, range from 5.69% to 20.15%. Significant costs include the real estate agent’s fee (3% to 5%, plus 23% VAT), transfer tax (0% to 10%) and legal fees (1% to 2%).

Read Buying Guide »

Landlord and Tenant

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.

Read Landlord and Tenant »

ECONOMIC GROWTH

Sharp economic contraction

The Portuguese economy is estimated to have contracted by a huge 8.1% in 2020 from a year earlier, following expansions of 2.2% in 2019, 2.6% in 2018, 3.5% in 2017, and 2% in 2016, according to the Banco de Portugal. The International Monetary Fund (IMF) and the European Commission (EC) are even more pessimistic, projecting declines of 10% and 9.3%, respectively.

The economy is expected to grow by 3.9% this year and by another 4.5% in 2022, based on the projections released by Banco de Portugal.The country saw six years of continued growth from 2014 to 2019 after a series of dismal years.

After registering a slight surplus of 0.1% of GDP in 2019 (the first surplus in the country’s 45 years of democracy), the country recorded another 7.3% budget deficit in 2020, amidst the introduction of pandemic-related stimulus aids, based on the EC’s estimates.

Portugal gdp inflation
As a result, Portugal’s already massive public debt burden soared further to around 135.1% of GDP in 2020, a sharp rise from 117.2% in 2019.The public debt is expected to fall to 130.3% of GDP in 2021 and to 127.2% of GDP in 2022.

Inflation stood at -0.2% in December 2020, down from 0.4% in December 2019 and from 0.7% two years ago, according to INE. Inflation is expected to accelerate to 0.9% this year and to 1.2% in 2022, based on estimates from the European Commission.

Unemployment, which has been falling steadily since 2013, increased to 8% in 2020 from 6.5% in 2019, according to the EC. It is expected to fall back to 7.7% this year and to 6.6% in 2022.
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