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Everything you need to know is included in our Portugal Property Pack
Are you considering buying real estate in the land of Port Wine? Are you wondering if the prices are adequately positioned?
People have different thoughts about market timing. Your Portuguese friend might tell you that now is the ideal time to buy property, whereas your colleagues in Lisbon may think that prices will soon decline.
At Investropa, when we create articles or update our pack of documents related to the real estate market in Portugal, we base our work on verifiable facts and concrete data rather than subjective opinions.
We have carefully gathered and analyzed official reports and government website statistics. Using this information, we have created a reliable database. Here's what we found that can help you decide whether it's a good time to buy real estate in Portugal.
Happy reading, and let's dive in!
How is the property market in Portugal these days?
Portugal is, today, one of the most stable countries in the world
Positive
Stability is the first indicator to look at because it minimizes legal, regulatory, and political risks, making it crucial for real estate investment choices. It is an information you need as a foreigner looking to buy a property in Portugal.
You probably already know that Portugal is incredibly stable. The last Fragile State Index reported for this country is 25.9, which extremely high.
Portugal is considered one of the most stable countries today due to its robust democratic institutions and consistent economic growth, which have been bolstered by effective fiscal policies and EU support. Additionally, its strategic focus on renewable energy and tourism has diversified the economy, reducing vulnerability to external shocks.
Investors can definitely rely on the country's stability for investment. Let's review the economic outlook.
Portugal will grow at a moderate pace
Positive
Before diving into real estate investment, the initial step is to assess the economic strength of the country.
As per the IMF's forecasts, Portugal is set to conclude 2024 with a growth rate of 1.7%, which is positive. As for 2025, the figure we're looking at is 2.1%.
This steady growth might keep going since Portugal's economy is expected to increase by 9% during the next 5 years, resulting in an average GDP growth rate of 1.8%.
A moderate growth rate in Portugal suggests a stable and sustainable economic environment, reducing the risk of sudden market crashes. This stability can make property investments more secure and potentially profitable over the long term, as property values are likely to appreciate steadily.
Nonetheless, there are other indicators to watch.
Portuguese business owners have a neutral outlook towards market conditions
Neutral
How do the people of Portugal view their economy? The GDP forecast doesn't provide the complete picture. Thankfully, in Portugal there is an official metric that is regularly reported. It's not the case for every country, so we're lucky.
The calculation of the Business Consumer Index (BCI) involves surveys and assessments of business leaders, indicating their confidence in the present and future economic conditions.
Statistics Portugal reports that the Business Confidence Index has reached a value of -1 for Portugal. It is definitely a small score.
There hasn't been significant change, considering that the BCI score, 12 months ago, registered at -4.
The current score is at a minimal level, but this isn't inherently negative. It's important to recognize that the BCI index has decreased in several countries globally. Additionally, minimal confidence scores often reflect temporary uncertainty, which is a normal aspect of economic cycles.Now, let's examine further data to determine if it's a suitable time to consider investing in Portugal.
Portugal is issuing less building permits
Neutral
Considering the number of permits issued can give you useful information when deciding if it's a good time to buy property in a country. When there is a higher number of building permits being issued, it means more construction is happening, which boosts the economy, creates jobs, and provides more options for people looking to buy or rent properties, making the property market stronger.
Unfortunately, the number of building permits issued is decreasing in Portugal.
Throughout the past year, according to Statistics Portugal, the number of building permits delivered by the Portuguese municipalities fell by 0.4%, from 25,620 to 25,519 units.
This is definitely a red flag. Let's consider more data to get a better understanding.
One last thing to note though. Less building permits means less real estate supply. If it's the case, then property prices will increase in Portugal in 2025.
Portugal's property market soars with unstoppable growth
Positive
Portugal's home prices have increased by 61.8% in 5 years according to Statistics Portugal.
It means that if you had bought a villa in the Algarve for $425,000 five years ago, then it would now be worth around $688,000.
Recently, the property market in Portugal has experienced an unstoppable and soaring growth trajectory. Property values have been consistently on the rise, and market activity has intensified.
If you're considering buying a property in Portugal, that's a positive sign. The market is active and growing. However, it might be beneficial to wait for prices to decrease before making your investment. This way, you can secure a better deal and potentially save money.
You can find a more detailed analysis of the real estate prices in our property pack for Portugal.
Everything you need to know is included in our Portugal Property Pack
Portugal's population is getting richer
Positive
Thinking about population growth and GDP per capita is essential when buying real estate, mainly because:
- a growing population means more people needing homes
- a higher GDP per person means people have more money to spend on housing (which can lead to increased property value over time)
In Portugal, the average GDP per capita has changed by 5.0% over the last 5 years. It's a solid number.
This means that, if you purchase a cozy cottage in Porto and rent it out, you will find that each year, you'll attract more tenants with sufficient funds to cover the rent.
If you're considering purchasing and renting it out, this trend is a good thing. Then, the rental demand might increase in Portuguese cities like Lisbon, Porto, or Faro in 2025.
Rental yields are attractive in Portugal
Positive
Rental yield is a frequently used measure to understand real estate investments.
It's the annual rental income of a property divided by its price. For example, if a Portuguese property is purchased for €150,000 and generates €6,000 in annual rental income, the rental yield would be 4%.
According to Numbeo, rental properties in Portugal offer gross rental yields ranging from 4.2% and 6.9%. You can find a more detailed analysis (by property and areas) in our pack of documents related to the real estate market in Portugal.
It means that a real estate purchase will provide a satisfactory return on investment.
As previously observed, the supply of real estate will remain constant, indicating that property prices are unlikely to change. However, there will be a growth in the number of affluent tenants. Consequently, rental yields may increase in Portugal in 2025.
Everything you need to know is included in our Portugal Property Pack
In Portugal, inflation is expected to be minimal
Neutral
In two words, inflation is when expenses inflate.
It's when your typical pastel de nata in Lisbon costs 2 euros instead of 1.50 euros a couple of years ago.
If you're planning to invest in a property, high inflation can offer several benefits:
- Property values often increase over time, leading to potential capital appreciation.
- Inflation can lead to higher rental rates, thereby increasing the cash flow from the property.
- Inflation decreases the real value of debt, making mortgage payments more affordable.
- Real estate can serve as a hedge against inflation, safeguarding the value of the investment.
- Diversifying into real estate provides stability during periods of inflation.
In line with IMF predictions, the inflation rate in Portugal will increase by 1.0% over the next 5 years, with an average annual increase of 0.2%.
It means that Portugal will likely experience almost no inflation. If you buy a property now, you may experience lower appreciation potential and reduced returns on investment.
Portugal Golden Visa is no more
Neutral
Golden Visa Program Changes and Its Impact on the Property Market
The recent changes to Portugal’s Golden Visa program could have notable implications for the property market, particularly due to the abolition of two major investment routes:
- As of October 2023, the removal of the real estate investment option and the €1.5 million bank deposit option has significantly altered the dynamics of foreign property investments in Portugal.
Although these changes may reduce demand from investors who previously targeted real estate, the Golden Visa program still offers alternative investment options:
- €500,000 investments in existing Portuguese businesses
- €250,000 donations to the arts or national heritage restoration
- €500,000 donations to scientific research institutes
Shifting Foreign Investment Trends
Despite the changes to the Golden Visa, foreign investment in Portugal's real estate market remains robust:
- In the first half of 2024, foreign direct investment (FDI) in Portugal totaled €4.1 billion, with €1.6 billion allocated to real estate. This suggests that, while the Golden Visa real estate option is no longer available, foreign buyers are still attracted to Portuguese properties.
- Although FDI in real estate declined from €853 million in Q4 2023 to €682 million in Q1 2024, the market remains appealing, likely driven by high demand for residential and commercial properties.
Investor Demographics and Their Impact on Property Values
Foreign investors have significantly influenced the pricing and trends within the Portuguese property market:
- U.S. and UK nationals continue to show increased interest in European Golden Visa programs, and despite the changes, Portugal remains a favored destination. In 2023, U.S. investors led the way with 567 applicants, followed by China and the UK.
- Foreign buyers often purchase properties that are, on average, 39% more expensive than those bought by Portuguese nationals. This trend is expected to persist as high-end, low-density developments, particularly in regions like the Algarve, attract affluent international clients.
Changes in Visa Programs and Their Potential Market Effects
The elimination of the real estate route within the Golden Visa program has shifted attention to alternative visa options, potentially impacting future property demand:
- The D7 visa, targeting retirees or individuals with passive income, has gained popularity. This visa allows for residency without the need for large real estate investments, which could shift the profile of property buyers away from high-end investors to more long-term residents.
Property Market Trends in 2024
The property market is expected to adjust to these policy changes:
- Although there has been a slight decline in foreign property purchases in early 2024, new development projects, particularly luxury and sustainable ones in regions like the Algarve, continue to attract international buyers.
- As demand for residential and investment properties evolves, new visa options and regional developments could reshape the market, maintaining foreign interest even in the face of regulatory changes.
In conclusion, the abolition of the real estate investment option from the Golden Visa program will likely cause a shift in investor behavior. However, foreign interest in Portugal’s property market is expected to remain strong due to alternative visa options, evolving investment preferences, and the continuing appeal of key regions like the Algarve.
Is it a good time to buy real estate in Portugal then?
Time to conclude !
2025 is shaping up to be an excellent time to invest in property in Portugal, thanks to its reputation as one of the most stable countries in the world. This stability is a key factor for anyone considering a property purchase, as it reduces the risk of sudden market crashes and ensures a more secure investment. With the country's economy projected to grow by 9% over the next five years, resulting in an average GDP growth rate of 1.8%, the economic environment is expected to remain steady and sustainable. This kind of moderate growth is ideal for property investors looking for long-term appreciation in property values.
Another reason to consider buying property in Portugal in 2025 is the limited issuance of building permits. With fewer new properties being built, the existing real estate market is likely to see increased demand, which can drive up property values. This scarcity of new construction can make existing properties more valuable, providing a good opportunity for investors to see a return on their investment as the market continues to grow.
Portugal's property market is experiencing unstoppable growth, and this is further supported by the fact that the population is getting richer. As more people have disposable income, the demand for property is likely to increase, which can lead to higher property prices. This growing affluence among the population can make the property market even more attractive to investors, as it suggests a strong and sustained demand for real estate.
Additionally, rental properties in Portugal offer attractive gross rental yields, ranging from 4.2% to 6.9%, according to Numbeo. This makes Portugal an appealing option for those looking to generate rental income from their property investments. Furthermore, with inflation expected to be minimal, the purchasing power of your investment is likely to remain stable, ensuring that your property investment retains its value over time. All these factors combined make 2025 a promising year to buy property in Portugal.
We genuinely hope this article has provided you with helpful information.. If you need to know more, you can check our our pack of documents related to the real estate market in Portugal.
-Will real estate prices go up in Portugal?
This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.