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Construction Insights May 2024: Portugal

23 May 2024
The real estate sector in Portugal has known over a decade of strong growth and investment but where does that leave us now and what changes will the new government bring?

Real estate growth and investment changes in Portugal: Could this be about to change? 

The real estate sector in Portugal has known over a decade of strong growth, due to the implementation of several policies: (i) liberalisation of the rent market, facilitating termination by the landlord and eviction; (ii) lift on restriction to the short-term rental market; (iii) golden visa program (offer of residency permits to non-EU investors who purchase property above a certain value threshold); and (iv) creation of the non-habitual resident status (a more favourable tax regime for people with high income, that decide to partially reside in Portugal).

As a consequence of such policies, the entire territory has witnessed unprecedented growth in property values and rental yields, that resisted even the adverse effects of Covid-19, with property prices remaining stable and transaction volumes rebounding swiftly as travel restrictions eased. 
However, we may assume that the lack of residences, namely for the young generation, is the head of all political discussions. This reality is more critical when real estate investments have significantly increased.

In fact, in the last 12 years, the real estate investment represented more than 50% of all the foreign investment. This real estate investment was, in 2023, 3.900 million euros which represented an increase of 22%  compared to 2022. This real estate investment represented the highest foreign investment, in this sector, since 2008. Foreign investments have been led by European ( 4.993 million euros ) and Asian ( 1.117 million euros ) investors.

Legislative changes in 2023/2024

The increase in real estate prices has been one of the most debated political issues over the past few years, with many claiming increased restrictions on foreign investment in this sector, the implementation of rent control measures, and the facilitation of construction.

Thus, on July 19th, 2023, the socialist majority excluded real estate direct investment as a means of obtaining a residency permit.

On October 6th, 2023, the socialist Government following measures came into force:

Rental market

Forced rental of habitation properties that have been empty for over five years; subjection of the decision to have short-term rentals in a habitational unit to previous authorisation from the condominium; tax incentives for transitioning properties from the short-term rental market to the habitational market; limit of the update of the rent, or the setting of the new rent to a new tenant, to a 2% increase; facilitation of the procedure to evict.

Construction market

State loans with low interest rates, to finance real estate habitational projects; exemption of payment of municipal tax over the sale of properties to real estate investment companies, provided they bought it and re-sold it for habitation purposes; State loans with low interest rates, to finance the ordered repair of vacant and condemned buildings/units, for subsequent rental for habitational purposes; lowering of VAT for the construction and repair of buildings/units for habitation.

More recently, in March of 2024, came into effect new measures, within the construction market: simplification of administrative procedures, reducing bureaucracy and expediting project approvals; tacit approval of the project in case of lack of a timely response from the competent authorities; facilitation of change of the usage permit for habitational purpose; exemption of permit for several construction projects.

Recent data and prospects for the current year 

The policies identified above seem to be having the desired effect, as the registered increase concentrated mainly in the retail and tourism properties, with a significant decrease in investment in the residential sector (with some exceptions, such as in the market of student residencies).

Nevertheless, the prices of properties and rents continue to rise, though at smaller rates (a 9,4% increase on the residential rental market was achieved in the first quarter of 2024, though some municipalities still register higher rates, such as Lisbon - 20,6% -, Cascais -16,6% -, Oeiras - 12,1% -, and Oporto - 22,1%.

It is also worth mentioning that the newly elected Government has promised to revoke some of the policies adopted in October/2023, though it is still unclear which ones this will be.
As we above mentioned, the lack of residents and real estate investments are crucial issues for the future of Portugal. The alternatives for these two questions will be some of the main aspects to support, or condemn, the current non-socialist Government that has a minority in the Parliament.

For further information contact: Luís Nobre Guedes, Nobre Guedes & Associados

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