Part II: Portugal – The Algarve and Lisbon.
In my previous article we had a close look into the French property market with the Côte d’Azur and its enchanting surroundings. We shall now head a long way south and venture into charming Algarve in Portugal, located some three hours away by car from Gibraltar on very good roads, and then drive up and have a look into Lisbon and its healthy property market.
The Algarve offers very good weather year-round with balmy winter conditions which attracts a good number of Northern Europeans including British, Irish, German, Dutch, Scandinavians and even Russians. It is an extremely attractive location because of several good reasons. Amongst them:
You have 300 hundred or more days of sunshine per year.
Probably the best sandy beaches in Europe with pristine waters.
It is perhaps one of the least polluted areas in Europe.
Great value property which offers very attractive rental income. Think of 5% as a minimum. 7% and upwards is not uncommon with small flats rented out via the usual OTA companies like Airbnb.
Taking these valuable points into account, we know the reason why it has become a highly desirable holiday destination, with not only the local Portuguese from the North and inland, but with a very important number of foreign visitors who either rent short term or settle full time in Portugal.
There are different locations starting from the beautiful pueblo of Vila Real de Santo Antonio, located on the right bank of river Guadiana just before it flows into the Atlantic Ocean, and all the way till you reach Punta Sagres on the far West side of the Portuguese country. The Colonial charm and Moorish ancestry of Faro City with its cobbled streets and whitewashed houses is difficult to match. There are excellent restaurants serving fresh local fish and very good Portuguese wines at great value prices. The beaches are miles long with golden sand and dunes. The best example is Praia da Marinha, which is rated amongst the top 100 beaches in the world. Faro has also got a handy airport with direct flights to the main European countries. A modern motorway departing from there links all of Portugal North to South with this city.
And now down to business. Why Portugal, apart from its obvious charm and excellent weather?
The right answer is great value, good yields and a house property market on the rise.
Portugal had a rise of 4.8% in the year of 2017, which is very attractive considering the slow years it had up until 2014 when the housing market started its gradual recovery. In the last year an increase of 23% took place in Portugal totalling over 24.000 transactions in 2017.
The economy is growing steadily – 2.6% in 2017 – and it is expected to grow up to similar figures this year.
Prices are still quite attractive in Lisbon where one can find a good flat located in an elite area with say 85m2 for as little as €200,000. A larger Lisbon apartment of 120m2 could set you back some €300,000 again in a very good location.
These apartments yield 5% on average when it comes to long term rental returns. If you settle for short term rentals via an OTA of your choice it can easily double or even treble but so does the work involved in marketing and management.
A similar situation is found in The Algarve. Rental income in The Algarve varies between 4.5% and 6% and considerably more if you do short holiday lets.
And what about taxes? There is a transfer tax for the buyer which at present stands at 6.5% if the property is Urban, 5% if it is an agricultural property or farm, 0% to 6% if the buyer intends to live in it permanently, and 10% if the buyer resides in a lower tax jurisdiction like Gibraltar.
A Registration fee is charged at 1.20% as a maximum, although it could be less depending on the type of house. Stamp duty stands at 0.8%. In all cases the value on which the taxes are paid is the purchase price.
Income tax in the case of rentals stands at 28% for nonresidents, and the same figure of 28% is what you would pay as nonresident in the way of capital gains tax when you sell on to another buyer.
Compared to Spain where you would only pay 19% when you sell or about the same on any rental income, it is higher. But lower than in France where you pay over 30%. And much higher than in Gibraltar where there is no capital gains tax. Portugal has no inheritance tax or gift tax.
If looking into the Portugal market in depth, one could say that Portuguese housing prices continue to rise, quite strongly fuelled by a healthy surging demand as well as improved economic conditions.
Another attractive factor for non EU nationals is that Portugal, along with other mediterranean countries like Spain, grants a 5 year residency status to any individual that buys a property worth at least €500.000. This allows the buyer to live and work in Portugal and to travel freely in all Schengen Countries. There are a lot of wealthy Asian or Russian buyers very keen to make the move into such an attractive, stable and low cost of living jurisdiction.
When considering property investments home or abroad one has to think of two quintessential factors: value for money, which you do get in Portugal where the average price still stands at a mere € 1.500 per m2 – much lower than in other jurisdictions like Spain or France, and a decent yield when it comes to rental income. Portugal with yields upwards of 5% is a first choice to consider in Europe.