Buying property in Lisbon? Check our brief property investment guide
Lisbon should be at the top of your list if you’re looking for a city with a fantastic quality of life.
Known locally as Lisboa, Lisbon is enchanting; with its stunning architecture, delicious food and welcoming culture, it’s no wonder that more and more people are choosing to invest in property here.
But what does the process of buying property in Lisbon look like? And what should you be aware of before you make your decision?
Read on for our guide to buying property in Lisbon as an investor – we’ll walk you through everything you need to know to get started.
Table of contents
- What are the requirements to buy a property in Lisbon?
- How much tax do I pay when buying a property in Lisbon?
- How to find a property in Lisbon?
- Where to buy property in Lisbon?
- What are the pitfalls of buying property in Lisbon?
- Why buy property in Lisbon?
- Can foreigners buy property in Lisbon?
- Is it worth buying a property in Lisbon?
- Is now a good time to buy property in Lisbon?
- Invest in Lisbon with GuestReady
1. What are the requirements to buy a property in Lisbon?
The great news is that there are very few restrictions for overseas buyers to purchase property in Lisbon.
You’ll need to have your finances in order and be prepared to provide some documentation. This will include putting a 20% down payment if financing through a loan or mortgage, plus completing the loan application process itself.
While welcoming overseas investment, Portugal also operates a Golden Visa program, allowing anyone that invests over 500,000€ in property to qualify for residency.
You’ll need to visit the country for 7 days a year to retain this residency, and after 5 years, you can qualify for citizenship. There are tax benefits to obtaining residency, which we go over below.
One thing to remember when approaching property investment in Portugal is that, like most European countries, Portugal operates on a first-come, first-served basis.
So, if you find your dream property, it’s essential to act fast and put in an offer as soon as possible.
2. How much tax do I pay when buying a property in Lisbon?
As a buyer, assuming this will be your first or second property, you’ll pay 3 taxes:
- transfer tax: IMT – Imposto Municipal sobre as Transmissões Onerosas
- annual property tax: IMI – Imposto Municipal sobre Imóveis
- stamp duty: Imposto de Selo
For rural land, a 5% flat rate is levied, while commercial property and building plots attract a 6.5% rate.
In addition to the IMT, you’ll also have to pay the stamp duty which is 0.8% to 10%, and the IMI (Imposto Municipal sobre Imóveis), between 0.3 and 0.45% for urban properties in Lisbon and other cities and towns.
There is a big caveat to this – if you are a resident in, or are running your business from any tax havens, you’ll pay 7.5% IMI.
In Lisbon, you’ll pay a flat rate of 28% tax on rental income, though this can be mitigated by Portuguese residents that are on the lowest tax rate of 14.5% if you add the rental income to your other annual income.
If you have not taken advantage of the Non-habitual resident scheme, you are restricted to the 28% tax bracket on your rental income as a non-resident. If you apply for the Non-habitual resident status you’ll pay a flat rate of 20% for 10 years.
If you are a Portuguese resident, you may also be liable for capital gains tax when selling your property. This is calculated at 50% of the profit made on the sale.
However, certain conditions allow you to avoid paying this tax – for example, if you’ve owned the property for over 5 years or reinvest the proceeds into another property for primary permanent residency.
3. How to find a property in Lisbon?
There are many great ways to locate property in Lisbon. Here are a few suggestions:
• Idealista is a property portal that specialises in Portuguese homes.
• OLX is an international community hub (of Portuguese origin) and marketplace where you can find everything from cars to properties.
• Local Estate Agents: Many local estate agents will have an extensive list of properties in Lisbon.
• Engels & Völkers is an international estate agent with a strong presence in Portugal.
• Castelhana is another international estate agent with a wide variety of properties listed in Lisbon and across Portugal as a whole.
4. Where to buy property in Lisbon?
There are many neighbourhoods to choose from in Lisbon, each with its own unique character. When deciding where to buy property in Lisbon as an investor, it’s important to consider what type of tenant you’re hoping to attract.
For example, students may look for a property close to the University of Lisbon in Campolide or Entrecampos. In contrast, young professionals prefer a more central neighbourhood like Baixa or Chiado. Families might look to the suburbs like Carnide or Loures.
Of course, each area has pros and cons, so it’s important to do your research before making a decision. We’ve covered a few of the highest-yield locations below.
Graça is a popular neighbourhood with tourists and young professionals alike. It’s located on one of Lisbon’s seven hills, offering great city views.
Real estate here sells for between 3,000€ and 6,000€ per square metre, with the 2020 average being 4,535€.
You can expect typical yields of 3.8%, the highest of Lisbons’ central neighbourhoods.
Chiado is Lisbon’s most central neighbourhood, making it an excellent choice for those looking for a property close to the city’s best amenities. It’s also one of the most expensive areas in Lisbon, with real estate selling for an average of 6,129€ per square metre.
Despite the high prices, you can still expect to see healthy yields of 2.9%.
Bairro Alto is one of Lisbon’s most vibrant and lively neighbourhoods. It’s known for its nightlife, with bars and clubs open until the early morning hours. This makes it a great choice for investors looking to rent to students or young professionals.
Prices here are lower than in Chiado, with the average square metre selling for 5,951€. Yields are also slightly higher at 3.1%.
Estrela is a leafy, residential neighbourhood located in central Lisbon. It’s popular with families and offers a more relaxed atmosphere than some of the city’s other neighbourhoods.
Real estate here is relatively affordable, with the average square metre selling for 5,531€. You can also expect to see healthy yields of around 3.1%.
Lapa is another central neighbourhood that’s popular with families and young professionals. It’s located close to Estrela and has a similar atmosphere.
Prices here are slightly higher, with the average square metre selling for 5,851€. Yields are also marginally higher at 3.3%.
Alfama is one of Lisbon’s most historic neighbourhoods and is known for its traditional architecture and cobbled streets. It’s a popular tourist spot, making it a great choice for investors looking to rent their property to holidaymakers.
Real estate here is relatively affordable, with the average square metre selling for 5,951€. You can expect to see healthy yields of around 3%.
5. What are the pitfalls of buying property in Lisbon?
Any investor needs to be aware of specific potential risks when buying property in a new city or country.
In Portugal, the first thing to be aware of is property debt, which we covered in our Buying Property in Portugal blog, which we strongly recommend you familiarise yourself with. However, any Portuguese property lawyer will check for such obligations before allowing you to proceed.
There have been issues with scams involving Portugal’s popular Golden Visa scheme, where agents have produced fake listings and forged documents in order to secure deposits from unwitting buyers, however, in Lisbon the strong expat community helps to ensure that unscrupulous vendors are quickly exposed and shut down.
If you plan on opening a short-term rental, there are some limitations, such as the contention areas in Porto and similar contention areas in Lisbon.
6. Why buy property in Lisbon?
In the past decade, Lisbon has undergone something of a renaissance. The city has been revitalised, with new infrastructure, restaurants, cafes and bars popping up all over the place. This has made it an increasingly popular tourist destination, which in turn has had a positive effect on the property market.
Prices have been rising steadily for the past few years and are expected to continue. This makes Lisbon an excellent choice for investors looking to capitalise on the city’s increasing popularity.
If you are new to the short-term rental market, a range of tools are available to help you calculate the daily rental rate of your property.
Lisbon is also a relatively safe investment when compared to other European cities. The Portuguese property market is not as susceptible to bubbles as other markets, making it a more stable option for savvy investors.
7. Can foreigners buy property in Lisbon?
Yes, foreigners can buy property in Lisbon. There are no restrictions on who can purchase property in Portugal.
However, it’s important to note that if you’re not a resident of Portugal, you will be subject to capital gains tax when you sell your property.
This is currently set at 50% (but calculated with individual income and expenses) if profit is not reinvested for permanent residency within 2 years.
8. Is it worth buying a property in Lisbon?
Absolutely! As we’ve seen, there are many reasons why buying property in Lisbon is a great investment. The city is growing in popularity, prices are rising, and the market is relatively stable.
Although the average yield sits at around 3%, this can increase to 5-6% in some areas, if you can get the right in-demand property.
Lisbon should definitely be on your radar if you’re considering investing in property.
9. Is now a good time to buy property in Lisbon?
When buying property, timing is everything if you’re looking for the best value for your money.
Prices in Lisbon have been rising steadily for the past few years and are expected to continue to do so.
So, if you’re thinking of investing in property in Lisbon, now is a great time to do it. Remember to think about the type of occupants you want on your property.
We’ve highlighted areas that are popular with tourists, students and young professionals, but you can work on smaller niches too.
For example, you could consider buying properties on the outskirts of Lisbon, or in neighbouring towns, such as Mafra, Torres Vedres, or Sintra – all areas with outstanding surfing and water sports.
Find out more about the best rental yields in Lisbon with our handy article.
10. Invest with GuestReady in Lisbon
Here at Guestready, we pride ourselves on being a leading short-term rental management company in Europe and Asia.
We offer a range of services to help property investors maximise their return on investment.
If you’re considering investing in Lisbon, contact us today to find out how we can help you achieve your investment goals and maximise your rental return.