Lisbon and Portuguese Resort Spots on the Rise

The country has seen more than €3 billion in investments as a result of the Golden Visa program

Portugal, like several other European countries, has been going for gold in the last few years. Golden visas, that is.

The so-called golden visa residency program, launched in Portugal in 2012 to counteract the economic crisis of 2008 and 2009, has helped revitalize the housing market. That program allows foreign citizens to obtain visas in exchange for a real estate investment of €500,000 (US$546,000), and attracted more than 5,550 new buyers to the Portuguese market by the end of 2017, according to the country’s Foreigners and Borders Service.

“The golden visa program is going quite well from a government point of view,” said Julian Walker, director of InternationalPropertyForSale.com in London, which promotes property in Western European countries and other so-called investment hotspots.

The program yielded more than €3 billion (US$3.8 billion) in Portuguese investments as of the end of last year, according to the Foreigners and Borders Service.

Brazil, China and South Africa are the top three nationalities attracted through Portugal’s golden visa program, according to government statistics.

There are also tax benefits for “non-habitual residents,” a separate program established by the government in 2009 to encourage high-net worth industries and individuals to relocate, according to the London-based financial planning firm Blevins Franks. It offers people working in “high-added value” professions in the country a flat income tax rate of just 20% for 10 years.

In addition, retirement savings are also eligible for tax breaks. Retirees who receive funds from their home country will not be subject to Portuguese taxes on those earnings for the first decade of residence, the firm said.

Because of the increased interest in Portugal, particularly the capital, Lisbon, the Algarve beach region and the northern city of Porto, home prices have risen. The average home now costs €1,144 (US$1,373), according to Portugal’s Office for National Statistics.

The median house price in Lisbon is €2,315 per square meter (US$2,769) as of November, according to the agency. That is a more than a 15% rise since the same time in 2016.

In the Algarve, the average house price was €1,447 per square meter (US$1,737) in November 2017. That’s up almost 8% from 2016. Prices in Porto are significantly less, at an average of €1,254 (US$1,555), about a 5.28% bump up, according to the agency.

Prices have been predicted to rise by 4.5% over the next year throughout the country. according to a report by the firm Confidencial Imobiliário. Over the next five years, growth could be as much as 5.5%, the report said.

An S&P market report predicts prices in the country will rise at an even higher rate, according to a Property Wire article. Prices are expected to rise 8.5% in 2018, which is the highest growth for any European country other than Ireland, where prices are expected to rise at the same rate. Portugal is predicted to continue to lead in price growth at 7% in 2019, dropping to an annual 6% growth in 2020, according to the report.

Supply Not Enough to Meet Increasing Demand

One issue is supply. Although there are several projects in development, the current lack of homes is driving prices up, said Ricardo Guimarães, managing director of Confidencial Imobiliário.

“The lack of residential product is currently one of the market’s challenges, as the existing stock is not enough for the increasing demand,” Mr. Guimarães said, adding that it is most significant in Porto and Lisbon. “Nevertheless, the number of new residential projects in the pipeline is growing and new supply is to come to the market in the next few years.”

A year-on-year comparison from 2016 to 2017 shows a growth rate of 66% of new residential projects in the Lisbon region, with the rise standing at 82% in the Porto region, according to Confidencial Imobiliário.

“New developments will benefit from price pressure and help to stabilize the market,” Mr. Guimarães said.

Despite the increase in prices, Mr. Walker said homes are still affordable compared to other European cities, like Paris or London.

“Portugal has typically been a less wealthy nation, where the base level for housing was quite low,” he said. Because prices started low, properties remain well-priced investments in comparison to other areas.

Lisbon’s central districts of Santo António, including the Avenida da Liberdade, and Misericórdia, including Bairro Alto and Cais do Sodré, are some of the most appealing to affluent buyers, Mr. Walker said. Those areas have the highest median prices, namely €3,294 per square meter (US$4,122) and €3,244 per square meter (US$4,059) respectively, representing year-on-year increases of 46% and 38%, according to analysis by Portugal’s Office for National Statistics.

Mr. Walker also pointed out that mortgage rates for foreign buyers in Portugal are less than 3%, with Portuguese banks typically offering 65% to 70% of loan-to-value and terms of up to 20 years.

“Clever investors, who would usually be cash buyers, are taking advantage of these excellent mortgage deals,” he said.

Government in Pursuit of Start-Ups for Lisbon

It’s not just foreign investors that are buoying the market, Mr. Walker added. A burgeoning tech industry is being cultivated by Portuguese officials in Lisbon in an effort to bring younger faces and new industries to the area.

The StartUP Voucher initiative, a national network of tech hubs launched in 2016, grants one-year fellowships to entrepreneurs ages 18 to 35 to get their projects going in Lisbon, according to its website. There are also initiatives to help with start-up costs and a national network of Portuguese incubators to help new businesses support each other.

In addition, the annual Web Summit conference, which was previously held in Dublin, has come to Lisbon, along with several start-ups, according to an article in Wired magazine.

Portugal’s “second city,” Porto, draws foreign business owners through its InvestPorto program, established in 2015 by the mayor of Porto in order to support the economic development of the city. Porto has attracted more investments than any other Portuguese city in the last 20 years, and the most jobs have been created there, according to Ernst and Young’s Survey of Attractiveness of Portugal in 2017.

And tourism in Portugal continues to grow, bringing more people to the country’s cities and beaches.

“Tourism will always draw up the property market,” Mr. Walker said. “The more people [who visit] there, the more people who might be inspired to look at a residential location.”

Mr. Walker also noted that more flight routes to Lisbon are being added from other European capitals like London, and that airlines have seen an uptick of passengers traveling there.

That has a particular impact on the Algarve area in the southern part of the country, which is primarily a vacation destination.

“The Algarve’s central area, namely from Albufeira to Loulé, remains the most important market for residential tourism property,” Mr. Guimarães said. Resorts and golf courses in the golden triangle, which includes Vale do Lobo, Vale do Garrao, Quinta do Lago and Almancil, are also popular.

Investors often buy property in the region and rent it out to short-term visitors.

“Renting short term on the tourist market, you can look for net yields of 5% at a minimum,” said Kathleen Peddicord, the founder of the Live and Invest Overseas publishing group. “Buying right and working your rental marketing, you could net 8% per year.”

The Algarve is also a hotspot for ex-pat retirees, who enjoy the sun and outdoor life while reaping the tax benefits, according to a survey of the top places to retire in the world by Live and Invest Overseas. The investment website named Portugal one of the best places in the world to invest or retire in 2018.