Portugal Real estate market review 2019 and outlook 2020

Before buying a property in a different country, it’s always a hard task to get an overview of the real estate market and understand if there is a high risk and what are the trends. And sometimes it’s impossible to read through hundreds of reports and analyze the status-quo. When it comes to Portugal, it’s even more difficult, because we all remember about the crisis that hit Portugal’s economy and can compare current conditions and those factors. But the environment has changed:

  • Government implemented wide-range reforms to improve economic situation that led to lower unemployment rate, higher GDP, income and development of real estate sector
  • Property prices are stable (and growing)
  • Most of the purchases are done by cash
  • Tourists flow is growing

Let’s dig into details.

Market stability

The real estate market in Portugal has been growing the last few years, though 2019 turned to be a slower year for this sector. The market is getting mature with stabilizing prices and doesn’t observe any peaks. However, according to Eurostat, it’s still one of the European countries with the highest annual price increase after Hungary, Luxembourg and Croatia (10.1% growth in the second quarter of 2019 in comparison to the same period in 2018).

Alfredo Valente, director of IAD Portugal real estate agency, says:

“There is a huge buyers’ interest in Portuguese real estate but not that many properties available, unfortunately. That is the main reason to believe that 2020 won’t be massive in terms of number of properties sold. But there are some new developments coming to the market in 2021 and 2022 at interesting prices, in case you can wait 2 years before acquiring a new property.”

Ricardo Costa, LUXIMOS Christie´s SEO confirms:

"The investment volume will remain high in 2020. Residential demand is expected to maintain the growing trend throughout 2020. In Porto, a supply increase is predicted, as news developments begin to emerge in noble places of the city. In the Algarve, the residential market is experiencing continuous growth, although the Brexit process brings some challenges, as this sector is extremely exposed to the British market."

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Property prices

According to Confidencial Imobiliário, mainland property prices rose by almost 15% during 2019 (until September), which actually is less than in record year of 2018. It means supply and demand levels are becoming balanced, and the market is getting safe.

Luximo's Christie's data state: "Our analysis estimates an appreciation of the Porto and Algarve markets above 5%. Generally speaking, a good deal is one that brings financial return to the investor if one day he sells the property. In fact, history confirms this trend year after year and those who own a property always manage to sell it at a profit. From this point of view, 2020 will not be a different year."

The house price growth has spread throughout the country, e.g. Lisbon’s price increase is 14.6% and Porto’s – 20%. The real estate landscape of Portugal is really changing, and not only Lisbon and Algarve are the main points of interest for the buyers nowadays. The reasons for that are lack in supply and new developments in Lisbon and of course property price (EUR 577K in Lisbon vs EUR 308K in Porto), that makes investors decide for the cheapest one. It’s also determined by different rental yields an investor can achieve – in Lisbon you can get 4.7-5.7% while in Porto you can already receive 7%.

Alfredo Valente confirms: “With a lot of interest from buyers and lack of properties, prices are still expected to rise, even if at a lower pace when compared to last years. For specific areas such as downtown Porto or Lisbon, we are expecting a slight correction of prices, due to a shift in demand that is falling after legal changes limiting the short term rental market.”

So, the trend is visible, Lisbon stays popular for the international investors though they extend their selection to various locations in Portugal.

Tourist traffic

The total number of tourists to Portugal made 21.1M. for the first 9 months of 2019, majority of those were non-residents (12.9M), it’s 6.9% more than in the same period of the previous year (Ine.pt). Lisbon (18.9%), Albufeira (12.8%), Funchal (7%) and Porto (6.2%) concentrated overnight stays of non-residents, and local stays were concentrated mostly in Lisbon and Porto (40% altogether). Thus, the tourist traffic is increasing as well as accommodation revenue, it’s to remember that international tourists are ready to pay more and select more expensive accommodation.

Investment into commercial sector

Investors are looking for greater yields, and they can be achieved with commercial objects like offices, hotels or accommodations of different kind. According to SBRE report, in Portugal, the student housing sector is currently generating the greatest interest and is expected to continue this trend in 2020, namely in new build developments. Why commercial sector can be attractive? (CBRE factors)

  • Definitely higher yields
  • Multiple options to diversify the resources (you can choose the asset)
  • Income stability (many income sources and they depend on long term leases)
  • Capital growth potential

Mortgage

Interest rate and monthly loans in October 2019 decreased to 1.038% and 274 euros accordingly. What does it mean for property buyers? It’s more advantageous to lend money from Portuguese banks and the loan repayment will be relatively low. Yes, there is a certain risk that inflation might grow, but it’s now under control of Portuguese bank as well as European Central Bank.

Other conditions important for property buyers

One thing is Portugal’s economy that is doing better than before, last year the GDP increased by 2.1% in volume compared to 2017, export increased by 5.3% (made almost €58M), poverty risks as well as unemployment rate have been decreasing from year to year.

Another thing is of course taxes, and especially the Non-Habitual Residence tax (since 2009), that implies 20% of all income received in Portugal and exemptions of taxes from income received in the home country.

One more measure to mention – Visa programs that are still available and supported by Portuguese government. These programs include:

  • Golden Visa (you need to buy properties worth EUR 500,000 or invest EUR 350,000 into rehabilitation objects for future redevelopment to get a residence status for 1 year, renewable twice for 2 years each)
  • Tech Visa (available since January 2019) which allows businesses to attract foreign employers (up to 50%) giving them a temporary residence status
  • Startup Visa (available since 2016), that allows you to get a residence status if you can prove you have a startup (in tech) and would like to set it up in Portugal

Predictions to 2020

The growth of real estate sector in 2020 can be not that massive, which proves the market is getting mature and stable. And when investing into property in a different country you shouldn’t expect an overnight success, so it might require 15 years to return the expenses. But if you are going to move to the country, it shouldn’t be a problem for you as you can sell your asset at a higher price even in a year.

But be sure to select the right location of your property, extend your search.

Alfredo Valente confirms, "We see now a real interest in more rural areas, up to one hour from main airports, where you can buy more area with a lower investment. Costa de Prata, north from Lisbon, or Azeitão and Comporta, south from the capital, are clear exemples.

But also more remote areas, such as Alentejo, Douro or even the Azores are under the radar of the market."