Market in Depth

Portugal's house price boom continues strong

Lalaine C. Delmendo | February 19, 2020

Portugal's housing prices continue to rise strongly, fuelled by low interest rates as well as improved economic conditions.

Property prices in Portugal soared by almost 8% (7.7% in real terms) y-o-y in November 2019, to an average price of €1,312 (US$1,461) per square metre (sq. m.), based on figures released by the InstitutoNacional de Estatistica (INE).

House 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 and 6.1% in 2018.

In Lisbon metropolitan area, property prices were up by 9.5% (9.2% in real terms) in November 2019 from a year earlier, to an average of €1,631 (US$1,816) per sq. m.

House prices rose in 23 of the country's 24 urban areas. Sintra recorded the highest increase of 18.3% during the year to November 2019, followed by Gondomar (16.7%), Vila Franca de Xira (15.5%), Vila Nova de Gaia (15.3%), Amadora (14.8%), Matosinhos (13.8%), Braga (12.7%), Funchal(11.3%), Almada (11.2%), Odivelas(10.5%), Seixal (10.4%), and Maia (10%). Strong house price rises were also registered in Vila Nova de Famalicão (9.8%), Coimbra (9.2%), Guimarães (8.5%),Setúbal (7.8%), Barcelos(6.6%), Oeiras(6.3%) and Loures (6.1%).

Modest to minimal house price increases were seen in Cascais (5.6%), Santa Maria da Feira (4.5%), Porto (3.3%), and Lisboa (0.5%). Only Leiria saw a house price decline of 2.5% during the year to November 2019.

By property type:
  • Flats prices rose strongly by 9.8% (9.5% in real terms) y-o-y in November 2019, to an average of €1,402 (US$1,561) per sq. m.
  • Villa prices rose by 4.2% (3.9% in real terms) during the year to November 2019, to an average of €1,162 (US$1,294) per sq. m.

Demand remains healthy. During the first three quarters of 2019, the total value of housing transactions rose by 4.3% y-o-y to €18.65 billion (US$20.82 billion) while the number of transactions was steady at 132,246 units, according to INE. Clearly the new wealth tax introduced in 2017, applicable to higher-valued properties, has in fact had a negligible impact on the luxury housing market.

The Portuguese housing market is expected to remain buoyant this year, with Moody's Investors Service predicting house price increases of around 4% - a slowdown from last year's strong price growth but still one of the biggest increases in the region.

“A sharp rise in the price of housing, although lower than in recent years,” said Moody's.

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.

The Portuguese economy expanded by a modest 2% in 2019, after annual rises of 2.4% in 2018, 3.5% in 2017, 2% in 2016, 1.8% in 2015, and 0.8% in 2014, according to the European Commission. The economy is expected to grow by 1.7% annually in the next two 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 »


Modest economic growth; improving finances

The Portuguese economy expanded by a modest 2% in 2019 from a year earlier, after annual rises of 2.4% in 2018, 3.5% in 2017, 2% in 2016, 1.8% in 2015, and 0.8% in 2014, according to the European Commission.

The country’s six years of continued growth comes after a series of dismal years. Portugal’s economy contracted 0.9% in 2013, 4.1% in 2012, and 1.7% in 2011, according to the International Monetary Fund (IMF). In 2010, the economy grew by 1.7%, but in 2009 GDP contracted by 3.1%, after average annual growth of only 1.4% between 2004 and 2008.

The economy is expected to grow by 1.7% annually in the next two years, based on estimates released by the European Commission.

Portugal gdp inflation
Portugal was the second euro zone country to exit its bailout program in May 2014, after three years of austerity. Portugal had sought its €78 billion (US$87 billion) bailout program in 2011, due to the government’s inability to meet its debt payments.

Portugal still faces a huge public debt burden of around 119.5% of GDP in 2019, though this is an improvement on 130.6% in 2014. The public debt is expected to fall to 117.1% of GDP in 2020 and to 113.7% of GDP in 2021.

The country’s fiscal deficit stood at 0.1% of GDP in 2019, sharply down from 0.4% in 2018, 3% in 2017, 1.9% in 2016, 4.4% in 2015 and 7.2% in 2014. In 2020 budget the government envisages a surplus of 0.2% of GDP – the first surplus in the country’s 45 years of democracy.

Inflation stood at 0.4% in December 2019, down from 0.7% in December 2018 and 1.5% two years ago, according to INE. Inflation is expected to accelerate to 1.1% this year and to 1.4% in 2021, based on estimates from the European Commission.

Unemployment was 6.1% in Q3 2019, down from 6.7% in the same period last year and the lowest level in 17 years. Portugal’s jobless rate averaged about 12% from 2010 to 2018. It is expected to fall further to 5.9% this year and to 5.6% in 2021.

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