Buying a holiday home in Portugal

Portugal has long been popular with foreign investors and there are plenty of reasons why. Here are some of our top reasons for choosing Portugal:

1. Portugal enjoys a warm and balmy Mediterranean climate. Which means it’s hot in the summer and mild in the winter. The all-year-round pleasant weather makes it an excellent choice for a holiday residence.
2. It is regarded as one of the most affordable Western European countries and the cost of living is estimated as 26.9% lower than in the UK.
3. Although property prices are on the increase, Portugal still offers foreign investors some excellent deals when it comes to property. For example, an apartment in the capital of Lisbon would be 11% cheaper than buying in Madrid, Spain, and a massive 68% cheaper than buying in London, UK.
4. Flight times to and from the UK to Portugal are less than three hours, so you can get to your holiday home quickly and start relaxing straight away!
5. Tourism is a booming industry in Portugal, so demand for short term rental properties is generally high. This is great news if you plan to rent out your holiday home for certain periods of the year.

Portugal’s landscape is unique; with beautiful coastal towns, bustling small cities, volcanic backdrops, and lush green countryside. You’re spoilt for choice when it comes to choosing the perfect location for your holiday property.

As with most countries, the price you pay for your property depends on the demand. So, if you’re choosing a popular town that attracts large numbers of tourists, you’ll be paying a higher price than if you were to choose a more remote area.

In this section we will look at some areas popular with foreign buyers and why.

The Algarve boasts miles and miles of beautiful beaches, a large and welcoming expat community, countless golf courses, and a busy nightlife.

Split into Eastern, Central and Western Algarve each area offers a variety of property types and plenty to do.

Prices in the less developed area of Tavira, in Eastern Algarve start from around €150,000 (£126,636) for a one-bed apartment to €300,000 (£253,272) and more for a villa.

In Central Algarve, in areas such as Vilamoura, villas start from around €650,000 (£545,756) and are surrounded by luxury resorts, a busy marina and premium golfing facilities. Albufeira is a more budget friendly option with two bed apartments starting at around €175,000 (£147,742).

If you want peace and quiet, then Western Algarve is your best bet. With Lagos and Praia da Luz providing everything you need without the crowds of busier tourist areas. Prices are similar to that of Eastern Algarve.

If you enjoy city life, then the coastal Capital is one of the most exciting and surprisingly affordable European cities you could choose for a second home. Traditional Portuguese architecture, winding cobbled streets, mind-blowing graffiti murals and a fashionable nightlife make Lisbon a must-visit kind of place.

Whilst property prices in the city are higher than more rural areas or smaller towns, the potential to rent your second home out is high and there is year-round demand for short term rental lets. Currently prices are estimated at around €5,426 (£4,580.85) per m2 and have risen by around 30% over the past five years.

Check out our guide here to find out about the different neighbourhoods and areas you might want to look at when searching for your dream Lisboa property.

Property prices are slightly higher in the Madeira Islands than mainland Portugal, but the stunning landscape and year-round flowers make it a truly magical location for a holiday home. From traditional Madeiran homes to new-build properties, there’s a lot to choose from. You’ll absolutely love the views and the relaxed lifestyle of this beautiful island and can find apartments starting at around €395,000 (£333,474.80).

The second largest Portuguese city is a great option if you like city life but want to avoid the busy crowds you’ll find in places like Albufeira and Lisbon. The city has been undergoing a makeover in the last few years and areas like Baixa and Foz are seeing a rise in restaurants, bars, and tourist attractions.

Buying in the centre of Porto costs around €4,296 (£3,626.86) per m2 (as of 2023) but buying property slightly out of the city is around €3,291 (£2,778.39) per m2.

For a taste of traditional Portugal, away from the tourist hotspots, the Silver Coast is a 150 km stretch of coastal towns, villages, and dramatic scenery. Towns such as Nazare, Peniche and Obidos offer authentic restaurants, beautiful views and plenty to keep you relaxed and happy in your new home.

There are plenty of bargains when it comes to property along this vast stretch of coastline, with a blend of old and new-build styles to satisfy all manner of tastes.

The table below shows the average property prices in towns and villages located in the Silver Coast in 2023.

Buying property in Portugal as a foreigner is quite straightforward. However, there are a few administrative steps you will need to take to ensure you get your dream holiday property which we have outlined below.

• You will need a Portuguese tax number (or NIF) as you cannot carry out large transactions without one. As a non-resident you can get a temporary NIF from a Portuguese lawyer or finance professional.
• It’s a good idea to open a Portuguese bank account, especially if you want to apply for a mortgage or loan** in Portugal and not your main country of residence.
• You’ll need to engage the services of a Portuguese lawyer to check all the contracts and make sure you (and the seller) take all the correct legal steps.
• By law, you will need to find a notary to carry out specific checks and to witness the signing of the sales contract.

You will need to pay certain taxes when buying property in Portugal regardless of your residency status. These include stamp duty, annual property tax and IMT property tax. Your legal professional will be able to advise what you need to pay at the point of purchase.

Please note, this is just a guide to buying a property in Portugal and does not constitute legal advice. Our iad Overseas property agents will be able to help you find your dream property and may be able to refer you to the relevant legal and financial professionals to help you complete the purchase.

If you want to earn rental income from your property when you’re not using it, there is plenty of demand from tourists for short-term rental lets especially in popular areas such as the Algarve and Lisbon.

You will need a special permit before renting out your holiday home known as a “Aljomento Local Licence” (local accommodation license). This must be up to date, and you will need to pass certain safety requirements and an inspection before it is issued. It’s worthwhile getting a Portuguese lawyer to carry out this process for you so you can be sure you’ve met all the legal requirements.

Rental yields in Portugal range anywhere from 5% to 8%. You will need to pay tax on your rental earnings as it is deemed as income regardless of whether you’re a resident or non-resident. Always speak to a tax advisor to make sure you’re paying the right amount of tax required by law.

Our agents are located all over Portugal and have been working with foreign investors just like you for many years. Speak to them about what you’re looking for in terms of your property and area requirements and let them show you the wonders of this beautiful country.

Ready to start your property search? Get in touch with us today.

** Credit commits you and must be repaid. Check your repayment capacity before committing.