Buying property in Lisbon
A hot destination for expats all over the world, Lisbon has seen the housing market consistently blossom over the past decade or so, resulting in the highest property prices ever recorded. Since January 2015, the average square meter price in Lisbon has gone up from 1,300€ to a staggering 3859€. In central Lisbon, in neighborhoods like Baixa, Bairro Alto, Chiado and Rossio, property prices have risen to 5,349€ per square meter (July 2023 figures), an extraordinary 167% leap in just a little over 8 years!
In fact, the Portuguese capital has recently made headlines after a CASAFARI study highlighted it as the second most expensive Southern European city to buy property, ahead of the likes of Madrid and Milan. That said, the prices per square meter in Lisbon are still relatively tame when compared to other capitals in Western Europe, though wages are noticeably low, and a lot of young people are currently struggling to be able to afford to leave their parents' homes. To make matters worse, interest rates are currently the highest they have been in 15 years, with 90% of bank loans in Portugal adhering to the variable-rate mortgage. Be that as it may, paying your mortgage in monthly installments is definitely cheaper than renting, as Lisbon has been nominated as the single most expensive city in Europe to rent a 1-bedroom apartment in the city center (2,500€/month). This makes buying property in Lisbon an excellent investment for expats who decide to stay in the city for longer, calling it permanently home.
Investing in property in Lisbon
The housing market in Lisbon (and Portugal as a whole) is doing quite well for investors, with property prices consistently moving up over the last 10 years.
However, social unrest is rising due to the fact that people are no longer able to buy or rent in the cities they work/study in. In order to tackle this urgent issue, the local government is pushing for a new set of measures dedicated to solving the housing crisis that is currently plaguing the country. As part of this new policy, the Golden Visa Scheme has been terminated in Lisbon, which means foreign investors can no longer live legally in the country and apply for citizenship after 5 years just for buying 500,000€ worth of property in the capital. Furthermore, this new legislation to tackle speculation and high prices has deemed it illegal to open up new AirbnB's in Lisbon and Porto, so you won't be able to rent your property to tourists (legally) if you're away from the city.
However, in what is arguably the most controversial proposition on the package, the government is also considering coercive leasing for properties that have been empty for at least one year with no proof of utility payments. Although its application is still shrouded in mystery, technically, owners can be served a notice stating that their property will be forcibly rented to a local family (for a sum deemed adequate by local authorities) if the house/apartment has been vacant for a long time.
However, if you're sole interest as an investor is to flip houses fast, you'll be happy to hear real estate prices in Lisbon continue to rise, with property prices in the metropolitan area going up by almost 8% over the past 2 years. On the downside, transaction costs associated with purchasing property in Lisbon are quite high. You should expect to pay the IMT (tax over property transactions), stamp duty, the cost of the House Deed, and, if you need to rely on a loan, the respective banking fees ( stamp duty). As an example, if you want to buy an apartment for 250,000€ and do not need financing, expect to pay 7,955€ for IMT, plus 2,000€ of stamp duty (0,8% of the total sale) and around 1,000€/1,500€ for the House Deed. If you need a bank loan for 80% of the purchase value (the highest cap in Portugal), then you should add 1,200€ (0.6% stamp duty for a 200,000€ loan) to the tally.
If it's the other way around and you're trying to sell, you should expect to pay real estate agent fees (usually 5% of the sale value), value-added tax over those fees (23% VAT), and other related legal fees. Plus, if you don't invest your capital gains into another property, you will have to pay income tax (IRS) over 50% of the amount you made. For example, if you had originally bought your property for 200,000€ and are now selling it for 250,000€, you've had a capital gain of 50,000€. However, you can deduct repairs, maintenance expenses and real estate agent fees. For simplification purposes, let's assume you never had any other deductible expenses aside from the agent fees (5% of 250,000€ = 12,500€). This sum will be deducted from the initial 50,000€, bringing your capital gains down to 37,500€. As mentioned above, the IRS will only be applicable to 50% of your gains, which means 18,750€ will be subjected to tax. If you are a legal resident and pay your taxes in Portugal, the amount you will effectively pay will depend on your other sources of income and annual deductions, with current tax brackets ranging between 14.5% and 48% (for higher-income households/individuals). However, if you're living in another EU country, an additional 5% will be added to your bracket as a “solidarity tax”. Finally, if you live and pay taxes outside the EU, then you will have to pay a 28% flat tax over 100% of your capital gains: in this case, you'd pay 10,500€ (37,500 * 28%) just in taxes for selling your property.
Property prices in Lisbon
Regarding prices, a study from the real estate platform CASAFARI, which compared real estate prices across different southern European cities in the first quarter of 2023, has shown that Lisbon's average price per square meter in the city center was sitting at 5,149€, with the last few months aggravating this stat. According to Portuguese real estate website Idealista, that same square meter rate had risen to 5400€ in October 2023. Considering the entire metropolitan region, the average price per square meter drops to 3,859€, though it has gone up 35% over the past five years.
Obviously, prices will differ according to the area you're researching. In Benfica, Carnide, Limiar or Marvila, for example, which are located right outside the city center, the average square meter price stands at around 4,000€, while the areas where the middle class used to reside, such as Odivelas, Loures or Amadora, can still offer a good bargain for budget-savvier expats (2,600€ per square meter). On the other hand, if you're running on a pretty tight budget and don't mind living quite far away from the city center, you may look up your options in Sobral do Monte Agraço, Azambuja and Arruda dos Vinhos, about 50km away from the downtown (1,300€-1,500€ per square meter).
Real estate agencies in Lisbon
The process of buying property in Lisbon can be anything but simple for non-natives. You are going to need a lot of paperwork, and it is easy to make a mistake and have to start the process all over again. If you are considering buying a house or property in the city's historic center, then you will definitely need a Portuguese lawyer, as houses in this area usually require specific licensing and permits, especially if you're planning on doing renovations.
If you are new to the area, it is definitely better to arrange your property purchase via a real estate agency.
Real estate agents in Portugal need to be government-registered and have a license number issued by the Association of Real Estate Agents (Associação de Mediadores Imobiliários). To check if the agent you are planning to work with is officially registered, you can contact the Instituto dos Mercados Públicos do Imobiliário e da Construção.
You should also be aware that real estate agents in Portugal work in the interest of the seller — and receive their commission from the seller as well. The good news here is that you won't have to pay a commission when buying a home. However, to make sure someone is looking out for your interests as well, it is best to get independent advice before signing any contracts.
There are countless real estate agencies and websites that can support expats when finding their new home in Lisbon: Remax, Era and Idealista being a few of them. Facebook Marketplace is also a good place to find independent sellers as long as you're especially attentive.
Most real estate agencies will speak English and can assist you throughout the buying process as well.
Last update on 05 November 2023 10:53:06