Portugal has recently emerged as one of the most popular locations for expats and digital nomads, thanks to its pleasant environment, cost-effective way of life, and robust real estate market. However, according to experts, the nation’s housing bubble will most certainly burst in 2023, with Moody’s projecting a drop in home values of up to 3%. The causes of this are several and include the COVID-19 pandemic’s effects, inflation, rising prices, higher interest rates, and recent legislation intended to restrain the expansion of the vacation rental business. In this post, we’ll look more closely at what’s causing the housing market in Portugal to be in decline and what it might mean for people trying to buy property there.
Portugal’s real estate market is among the fastest-growing in Europe, but it isn’t in line with the country’s GDP or residents’ wages. Golden Visas, investments in vacation rentals, and the relative affordability of the nation for tourists have all fueled the sector. While the pandemic, inflation, and growing prices are still making Portugal an attractive place for people to relocate, the situation is now more conducive to the real estate bubble popping shortly.
Particularly in Lisbon, where the market is the most inflated, housing prices have increased significantly in recent years. Lisbon’s average price per square meter in 2016 was €1,968, but by 2022 it had increased to €5,130. The average price per square meter in Portugal has increased significantly over the previous four years, going from €866 in 2016 to €2,360 in 2022, even if the situation there is not quite as terrible.
The Golden Visa scheme, which allows affluent foreigners to obtain residency by either investing in Portuguese businesses or purchasing real estate, has been one of the major drivers influencing the rise of the Portuguese housing market. However, this program has generated debate because the vast majority of Golden Visas (92%) have been awarded through real estate investments, driving up the cost of housing in Portugal. With a special group formed to assess the program, Prime Minister António Costa announced plans to stop the Golden Visa program in November 2022. If this program is terminated, the market, which has generated close to 7 billion euros since its launch in 2012, is expected to experience a decline in interest.
The prevalence of holiday rentals is another element boosting the housing market. There are indications, though, that the government is starting to act to slow the sector’s expansion. It is anticipated that new legislation intended to limit the number of alojamento local (vacation rental) homes will have a substantial effect on the market. Currently, Portugal has about 106,000 homes that are used for local lodging, including over 26,000 in Lisbon alone. In spite of an abundance of supply, this has caused a false shortage of real estate on the market, with many properties sitting idle. Additionally, taxation may soon increase for owners of holiday homes in Portugal, with 35% of income being taxed as Personal Income Tax. 17.5% of income earned in the first year is subject to income tax, and 26.5% of income received in the second year is subject to income tax for people who have registered as atividade independente and do not work for others or are pensioners.
In conclusion, it appears likely that the housing bubble in Portugal will bust around 2023. A number of elements, including as the closure of the Golden Visa program, fresh regulations intended to restrain the expansion of the vacation rental business, rising interest rates, inflation, and the COVID-19 pandemic’s effects
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Scott Kirk is the owner of BuyProperty.com and the online communities “Moving to Portugal” and “Expats in Portugal Q&A” which helps over 340,000 members relocate to sunny Portugal. You can contact him directly at scottk@buyproperty.com with any questions or comments.