The housing crisis in Portugal has become a topic of concern for both residents and foreigners. With soaring rental and house prices, questions have arisen about the role of foreigners in exacerbating this issue. To enlighten you, we will delve into the current state of the Portuguese real estate market, exploring rental and house price developments, rental and purchase offers, myths and facts, and the impact of foreigners on housing in Portugal.
To begin with, it is important to note that the housing crisis in Portugal is not an isolated issue but rather a global concern. As many major cities worldwide grapple with skyrocketing housing costs, Portugal is no exception. However, once you have a basic understanding of the market, one question remains. Why is there a housing crisis if, over the last 10 years, the resident population has decreased and the number of homes has increased? The INE housing data (country’s statistics) shows, concerning the development of housing offered in Portugal, that there are more houses available on the market and fewer residents in the country compared to 10 years ago.
It is not true that Portugal is experiencing a shortage of housing. The country has one of the highest number of houses per citizen – 5 970 677 houses for a total of 10 467 366 residents in the year 2022 and was considered the second country regarding the number of vacant houses. Portugal has a 78% ownership rate, which is rather higher than the European average of 70%.
Of these almost 6 million existing buildings, 18.5% are secondary dwellings and 12.1% are vacant. This is the number that has to be considered when discussing this matter. 12.1% of houses vacant represents 723,215 homes that could be on the market. There could be several reasons why these houses are not on the market, such as:
There is also the lack of motivation to rent your property in the regular Portuguese real estate market. The landlord must declare rent every month to the IRS and pay tax from 10% (agreement for more than 20 years) to 28% (for less than 3 years) of their rental income. Many landlords are also aware that rents could only be increased by a state-regulated coefficient every year since 2006. In the past, many landlords did not rent their property because of this regulation which led to many dilapidated houses, because renting simply did not pay off in the past.
Regarding the latter, according to INE, the number of licenses granted for rehabilitation in 2022 was 4,491, which represents a 9.3% decrease from the previous year and a 17.4% decrease from 2019 (the pre-pandemic year for a fair comparison). This data can be explained by factors such as the rent freeze, where the government sets a maximum percentage for landlords to increase rents, and also the fact that taxes on rent are high. This results in a lack of motivation to rent and a lack of investment by landlords.
However, it is also true that the family structure of the Portuguese has changed significantly in recent years. Today, we have many more one-person households (an increase of 161,000 households between 2011 and 2021), as well as two-person households (an increase of 105,000 households over the same period), which means that if the tendency continues, for the same number of people, more housing will be needed. If the number of vacant homes continues to rise and the government doesn’t provide effective solutions to increase the number of affordable homes in Portugal, the problem will persist.
According to the National Registry of Local Accommodation, on December 31, 2022, there were 108,523 Alojamento Local registrations in Portugal. This figure is equivalent to less than 2% of all classic accommodation in Portugal.
Most of these local accommodations are not intended as permanent housing but as a response to the increase in tourist demand in recent years. In turn, it has important economic effects for Portugal and especially for the citizens and owners, for whom this is their main source of income. AL is a way to allow Portuguese residents to participate in tourism alongside hotels, which often pay the minimum wage and optimize their taxes internationally.
In addition, the concentration of population in certain areas of the country is not favoring the situation. There is a traditional migration of the population from the interior to the coast and urban centers, especially to the districts of Lisbon, Porto, and Faro, with increases of 2.4%, 0.7%, and 4.3%, respectively. This is due to most job and education opportunities being located in these areas.
Foreign buyers do play a role in the real estate market, but they are not the primary drivers of price increases. Data from the Portuguese Institute of Statistics (INE) suggests that while there has been an increase in foreign investment, the majority of buyers (88,3%) in Portugal remain Portuguese citizens. House price developments were in the recent past more influenced by various factors, including rising construction costs, restrictions on licensing, and most importantly high local demand because of the low interest rates.
Foreigners also tend to buy way more expensive real estate – the average transaction value for non-resident buyers is 95% higher than for resident buyers. Meaning that they operate mostly in different brackets of the Portuguese real estate market.
According to data from Global Citizen Solutions, in 2022 the Portuguese government granted a total of 1.888 Golden Visas, and of these, 21% were made through investments other than in real estate. If you compare this number to a total of 167.900 real estate sales in 2022, the impact of Golden Visa investors in the real estate market is neglectable. Investment in real estate through the Golden Visa program represents 3.5% of the total amount invested in the national market in the last decade – and this weight has been falling in recent years.
As previously stated, foreign investment in Portugal is also in a way different real estate market bracket. The average value of a Golden Visa investment is around 575 thousand euros, which occurs mostly in hotels. And, the average amount contracted for mortgage loans in 2022 was 112,514 thousand euros, according to statistical information from Banco de Portugal.
Yes, they do. Portugal has many houses on the market, and rents and real estate prices are still relatively cheap compared to other countries. However, incomes in Portugal are low. According to the OECD, Portugal has the 6th lowest average gross annual salary among OECD countries. This is something like 28,410 dollars a year (24,557 euros), or 1,378.64 euros gross per month, to which compulsory taxes are applied, resulting in an average salary of between 1,010 and 1,125 euros.
Since most high-paying jobs are located in Lisbon, Porto, Braga, and Faro – where real estate is more expensive -, it becomes hard for Portuguese people to make rent, or to buy a home – especially young adults. Of course, there is also the difficult economic context that Europe has been going through due to the war in Ukraine, inflation, and, consequently, rising interest rates.
For the housing crisis to be controlled, the Portuguese government must implement measures. For example, reinforcing investment in the existing infrastructure, higher motivation for homeowners to rent their properties for affordable prices, and an increase in public housing, which represented only 2% of the Portuguese real estate market in 2022. This could be done via the rehabilitation of the government’s vacant houses (645, in 2021), for example.
If you have more questions about the topic or need help learning how to invest and live in Portugal, make sure to get in touch with me!
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