Portugal's economic recovery and its impact on real estate
In 2011, the combined IMF and EU's rescue programme saved Portugal from total collapse and bankruptcy and has resulted in Portugal's continuous economic improvement. In 2014-2016, the Portuguese tourism market grew by 11.1%. Growth continued in the years that followed, and in 2016, we saw a considerable recovery in Portugal's local economy, which was accompanied by numerous opportunities for investors. In 2017, Portugal's economy boosted exports and investments, with an emphasis on tourism and the real estate market. The real estate market was also affected by the massive increase in tourism and the demand for tourist accommodation as well as foreign property purchases, particularly in Porto and Lisbon - Portugal’s largest cities.
Portugal's stability - Solid investment
Portugal is currently experiencing a sharp drop in unemployment, a projected annual growth of 1.7%, a GDP which is back to the pre-crisis level of 2011, an improved rating from “stable” to “positive” status and a flourishing tourism sector. One of Portugal's major advantages is its stability, and the Portuguese banking system is responding to this stability by granting generous loans and mortgages. As a result, the value of assets in Lisbon is rising steadily.
Real estate transactions in Porto and Lisbon
Porto, the second largest city in Portugal, is a beautiful port city with pleasant weather. The city attracts many tourists, students and a community of retirees who are drawn to the city because of the low cost of living. It also attracts numerous foreign investors. Lisbon, the capital and largest city of Portugal, is Portugal's economic and cultural hub. It attracts throngs of tourists and subsequently, a great number of investors are acquiring and renovating properties there for the purpose of short-term rentals through Airbnb.
The Portuguese process for obtaining permits is smooth and simple. Once you submit a construction plan, the building permit is granted within three weeks, enabling the investor to carry out a betterment plan and sell the property fairly quickly at a rewarding value increase.
Yields in Lisbon and Porto on long-term apartment rentals are more lucrative than in alternative markets and returns on investment in property to let can reach up to 7%. There is a very high demand for short-term rental properties as a result of growing tourism, and the return on such properties is double that of long-term rentals. With proper management, a 15% return is feasible.
Rental data for Airbnb apartments show continued demand in Lisbon and Porto and occupancy rates for properties in central Lisbon and Porto are always high, between 80% and 90%, regardless of the rental property size.
It is also possible to invest in larger-scale projects in these cities (hotel construction, student hostels, multi-family residences, and more). A group of investors (family, friends, etc.) can pool their resources to buy and renovate an old building. Portuguese banks occasionally finance such projects, providing loans of up to 80% of the transaction amount. The goal, of course, is to find good and inexpensive assets that will yield a good return on the investment.
Real estate deals in Portugal - Why do they pay off?
In recent years, Portugal has become the most dynamic real estate market in Western Europe thanks to the tax benefits for foreign investors and the gold visa scheme that offers a residency status to those investing at least €500,000 in the country. According to Eurostat - the European Commission's Bureau of Statistics, real estate prices in Portugal have seen the sharpest rise in the Eurozone in the first quarter of this year. These incentives have made cities like Lisbon and Porto a desirable destination for foreign investors.
Financing transactions in Portugal
Foreign investors in Portugal are eligible for a local mortgage loan from financial institutions to purchase real estate in Portugal. The current interest rates in Europe are extremely low, creating a rare investment opportunity. To encourage investment, some European countries have imposed negative interest rates. In order to take out a mortgage on the property that you want to purchase, you must complete all the paperwork required by the investment bank (payslips, proof of repayment capability, and more). The bank will require the investor to have a minimum deposit of at least 20% of the purchase cost, and the remaining 80% will be financed by the bank. Currently, there is an option of investment financing services in Portugal, which is a service best suited to experienced investors who want to leverage their investments.
Before taking out a mortgage, it is important to set an investment budget, and wisely select an asset. To ensure a professional and efficient process, it is advisable to hire the services of experts who are familiar with the local banking system, procedures in Portugal, the various options available, and the documents required by the bank. Good luck!