Market in Depth

Recovery in demand amidst improving economic conditions

Lalaine C. Delmendo | January 23, 2022

Portugal's housing market is now strengthening, thanks to a sharp recovery in demand amidst improving economic conditions.

During the year to October 2021, the median price of dwellings in Portugal surged 10.61% (8.63% in real terms) to €1,251 (US$1,414) per square meter (sq. m) – almost twice the y-o-y growth of 5.8% recorded in October 2020, according to figures released by the Instituto Nacional de Estatistica (INE).

Property prices in Portugal started to recover in 2014 and have been rising since. House prices rose by 4.9% in 2015, 5.7% in 2016, 7% in 2017, 9.7% in 2018, 11.7% in 2019 and 6% in 2020.

In Lisbon metropolitan area, property prices were up by 10.31% (8.33% in real terms) in October 2021 from a year earlier, to a median price of €1,659 (US$1,876) per sq. m.

By region:
  • In the North, the median property price rose strongly by 9.16% y-o-y in October 2021 (7.21% in real terms), to €1,084 (US$1,226) per sq. m.
  • In the Center, property prices rose by 6.15% y-o-y in October 2021 (4.25% in real terms), to €880 (US$996) per sq. m.
  • In Alentejo, property prices rose by 5.69% (3.8% in real terms) y-o-y to €873 (US$988) per sq. m.
  • In Algarve, property prices rose by 7.94% (6% in real terms) y-o-y to €1,673 (US$1,893) per sq. m.
  • In the Azores, property prices increased 2.04% (0.21% in real terms) y-o-y to €951 (US$1,076) per sq. m.

  • In Madeira, the median property price rose strongly by 9.54% (7.58% in real terms) y-o-y to €1,286 (US$1,455) per sq. m. in October 2021

By property type, apartment prices rose by 11.78% (9.78% in real terms) while house prices increased 6.65% (4.74% in real terms).

Demand is recovering strongly. During the first three quarters of 2021, the total number of housing transactions in Portugal rose by 25.4% y-o-y to 153,076 units while the value of transactions increased 33.3% to €24.86 billion (US$28.16 billion), according to INE. All regions saw double-digit transaction increases over the same period. This is in contrast to a 5.3% decline during 2020.

Construction activity is rising. Licensed dwellings in new constructions for family housing rose by 12.5% y-o-y to 23,348 units in the first ten months of 2021, according to the INE. Algarve saw the biggest increase in construction activity of 43% y-o-y in Jan-Oct 2021, followed by Alentejo (17.9%), Lisbon AM (15.2%), and Norte (12.7%). Other regions saw modest increases, including Centro (2.9%), autonomous regions of Azores Islands (4.1%) and Madeira (4.3%).

The Portuguese economy contracted by a huge 8.4% 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, amidst the coronavirus outbreak. The Banco de Portugal expects the economy to return to growth this year, with a projected real GDP growth of 4.8% – but still not enough to return to its pre-pandemic level. Projections from the International Monetary Fund (IMF) and the European Commission (EC) are even more conservative, projecting modest growth of 4.4% and 4.5%, respectively.


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

Portugal’s economy improving

The Portuguese economy contracted by a huge 8.4% 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, amidst the coronavirus outbreak.

The Banco de Portugal expects the economy to grow by 4.8% this year – still not enough to return to its pre-pandemic level. Projections from the International Monetary Fund (IMF) and the European Commission (EC) are even more pessimistic, projecting modest growth of 4.4% and 4.5%, respectively.

The country saw six years of continued growth from 2014 to 2019 after a series of dismal years.

Portugal gdp inflation
After a slight budget surplus of 0.1% of GDP in 2019 (the first surplus in the country’s 45 years of democracy), the country recorded a 5.8% budget deficit in 2020, amidst pandemic-related stimulus aids. Portugal is projected to record a shortfall of 4.5% of GDP in 2021.

As a result, Portugal’s already massive public debt burden soared further to around 135.2% of GDP in 2020, a sharp rise from 117.2% in 2019. Public debt is expected to fall to 128.1% of GDP in 2021 and to 123.9% of GDP in 2022.

Portugal unemployment
Inflation accelerated to 2.58% in November 2021, sharply up from 1.83% in the previous month and -0.22% a year, according to INE. In fact, it was the highest level in almost nine years. Inflation slowed to an average of 0.5% annually from 2013 to 2020, from 2.6% in 2000-2012.

Unemployment, which has been falling steadily since 2013, increased to 7% in 2020 from 6.6% in 2019. It is expected to fall slightly to 6.9% this year and to 6.7% in 2022, according to the IMF.