3 Big Changes In Portugal

From record-breaking international interest to the cancellation of the highly popular real estate investment category of its golden visa program, Portugal has had a whirlwind 2023.

Does this country still make sense for property investors as we make our way into 2024? We’re putting together an event in April next year that can help you answer that question.

Meantime, read on for my analysis…

2023 Recap: Portugal’s Unprecedented Year

• Portugal Changes Its Golden Visa Program

Portugal made headlines when it announced major changes to its highly popular golden visa program in February.

Specifically, it abolished the real estate investment option of the program, which was previously Europe’s most popular.

The supposed reason for the abolition is that too many visa-buyers were flooding the property market, driving up prices for locals. The change came at a time when Portugal was in the middle of a housing-supply crunch…

Whether the government’s plan to bring down housing costs by altering the rules of the golden visa program will work remains to be seen…

Regardless, the door to Portugal’s property market is still very much open to foreign investors and expats, and it remains one of the easiest places in Europe to get residency.

In fact, its golden visa program still stands. It’s just that real estate is no longer a qualifying investment class. Instead, your options are to make a capital transfer (200,000 euros minimum) or a business investment (500,000 euros minimum).

• Record-Breaking International Interest

We at Live And Invest Overseas have long recommended Portugal as a place to spend time and money.

It’s won the top spot in our annual Overseas Retirement Index more than any other destination… although the jury is still out for the 2024 edition.

This year, it looks like mainstream tourism and expat markets finally caught on to what we’ve been saying for more than a decade. Portugal received unprecedented tourist and expat arrivals.

The hotel industry in the Algarve registered an average occupancy rate of 73% in May—the highest rate for the month in 22 years. But it’s not just tourists that have shown an abnormally high interest in Portugal recently…

In June 2022, Portugal’s Immigration and Border Service Agency reported a 12% year-on-year increase in the number of foreigners residing in Portugal from 2021 to 2022, putting the total number at about 782,000.

North Americans, in particular, are flocking here. Their numbers are up by more than 34%—the greatest increase among all continent groups.

Alongside increased residency came increased requests for Portuguese citizenship. They rose to an all-time high in 2022, up by more than 37% compared to the year before. 

Possible End To The NHR Regime

In October, rumors began circulating that Portugal’s Non-Habitual Residents (NHR) regime would come to an end…

This regime provides tax exemptions to foreign residents, allowing certain types of income to be taxed at special rates. Pensions, for instance, can be taxed at a special rate of 10%, enhancing Portugal’s popularity as a retirement haven.

Portugal’s prime minister, António Costa, stated that NHR tax reductions would cease in 2024. He cited Portugal’s housing affordability crisis as a reason for this decision.

Then, on Nov. 7, Costa resigned as prime minister amid a corruption probe. Some predict that, with him gone, the NHR regime will stay on the table for at least another year…

What About Portugal’s Property Market?

Property prices in Portugal have been on the rise for the past decade, but the past two years have seen them skyrocket.

From 2012 to 2021, they increased by 78%, far outpacing property price growth in the EU as a whole (35%) during that period.

During the year to November 2022, the median price of dwellings in Portugal increased by almost 14% to 1,449 euros per square meter.

In the Lisbon Metropolitan Area, prices went up by more than 15% (to 1,929 euros per square meter) during the same period.

In fact, in all the major regions of the country, property prices went up by double-digit percentages during that period. In the Algarve, they went up by a whopping 17.6% (to 2,009 euros per square meter).

Rent prices follow a similar pattern.

Lisbon was named the second most expensive city to rent a property in 2023 in the HousingAnywhere International Rent Index.

The average apartment in Lisbon now rents for 2,000 euros, while in Porto, it rose to 1,400 euros (a 200-euro increase from 2022).

Is Portugal Property Still A Good Buy In 2024?

Demand for Portuguese property continues to grow.

According to the Instituto Nacional de Estatistica, housing transactions increased by 8% year on year during the first three quarters of 2022, and transaction value increased by almost 23% to 24.4 billion euros.

The Algarve was the focus of attention, where the number of transactions increased by more than 16% year on year during the first three quarters of 2022.

Indicators in residential construction are positive as well, with both licenses for new dwellings and dwelling completions up during Q1 to Q3 of last year.

In spite of the hot market conditions, overall, property in Portugal remains affordable, especially if you’re coming from the United States.

The average price for dwellings in Portugal as of November 2022 was $1,570 per square meter, versus a median listing price of $2,379 per square meter in the States.

Property in Portugal is 34% cheaper than property in the States. Even its most expensive property market, the Algarve, is still more affordable than the States, at 8% less… and the Algarve has a Mediterranean climate, beaches, and golf resorts.

If you’re looking at prices in general (rather than prices in Portugal compared to what they used to be), Portugal remains a good option for property investment in 2024. Rental yields are moderate (3% to 10%, depending on the area) for a mature European property market.

Portugal doesn’t impose restrictions on foreign property buyers, transaction costs are relatively low, and it’s one of few countries where foreign buyers can secure a mortgage for the purchase of real estate (albeit with restrictions).

Portugal’s popularity has momentum that’s not slowing… even in the face of rising prices and reduced incentives for foreign investment.

Sincerely,

Sophia Titley

Editor, Overseas Property Alert