Purchase a Villa in the South of Portugal (Faro District) for Short-Term Rentals

A villa by the seaside is an attractive investment object. The world’s tourist industry is recovering from the pandemic at a fast pace and it is even breaking some records. The demand for housing currently exceeds the supply in several popular tourist destinations. For this reason, rental accommodations are always booked. Below we describe three villas for sale in the South of Portugal that you could easily let on a short-term lease if you bought them.

Prohibition to let an apartment on a short-term lease went into force in Portugal on October 7, 2023. No new licenses are issued and many existing licenses are revoked. However, it is legal to rent out a detached house or a villa for a day or two, which makes such a piece of property highly attractive for an investor. Since fewer apartments are available to short-term visitors, detached houses are going to be in greater demand with tourists wishing to spend a week or so in Portugal.  

What investment options do you have? We would like to draw your attention to 3 promising investment objects located in the district of Faro, a historic center of Algarve province:  

• A three-bedroom villa with a swimming pool and a garage in an ideal location: the construction process is expected to be completed by March 2024;
• A three-bedroom villa with a barbecue zone, a swimming pool, and a garage sitting near the beach at the center of a resort town;
• A large villa with a terrace at the ‘golden coast’ of Algarve highly popular with international tourists.

Let us consider the investment options in some detail.

Villa in Carvoeiro (municipality of Lagos, Faro district) – 395,000 €

The villa in Carvoeiro has three floors:

• The ground floor holds the utilities: water supply, sewage, and electricity supply. There is enough space for an extra bedroom or an art studio on the ground floor.
• On the first floor, there is an entrance hall, a kitchen, a living room, a bathroom, and a terrace.
• On the second floor, there are 2 bedrooms with a shared bathroom and a study. Both bedrooms have balconies, one of them overlooking the sea.
• On the roof, you will find a terrace that is perfect for enjoying the warm sun of Algarve and the breathtaking views of the sea.

Characteristics of the property:

• space:
  • total — 160 m²;
  • living — 110 m²;
  • Land plot — 125 m²;
• A three-story building;
• 1 living room, 2 bedrooms, 3 bathrooms, a study, and balconies;
• Most windows face south;
• Located 1 km away from the sea;
• A supermarket, a beach, and public transport stops are nearby;
• Equipped with an air conditioner, electric-driven blinders, a fridge, and an electric stove with a glass ceramic cooktop;
• Has energy rating D.

A 3-bedroom villa in Alvor (Portimão municipality, Faro district) — 556,500 €

A modern looking villa wonderfully made from the inside and the outside. It is located close to the city center and it gives easy access to fantastic beaches of Portimão, golf courses, and tennis courts. The picturesque fishing village of Alvor and the popular town of Lagos are a short drive away. The villa is located on a 405-m² plot and is surrounded by a green garden.

On the first floor, you will find an open-space kitchen and dining area, a large living room where you can watch TV and a cozy home office. You can walk out to the beautiful garden and find a swimming pool and a barbecue area there. The second floor has 3 bedrooms with closets and 2 bathrooms. The windows are large on both floors, which guarantees a lot of sunlight.  

You can live in the villa permanently, use it when you visit Portugal on vacations, or rent it out to tourists. The construction process is going to be complete by March 2024. The developer will help you with the interior design at no extra charge. You also will not have to pay an application processing fee if you apply for a mortgage to buy the villa.  

Characteristics of the property:

• space:
  • total — 273 m²;
  • living — 95 m²;
  • land plot — 405 m²;
• First floor: kitchen, living rooms, study, bathroom, technical room;
• Second floor: 3 bedrooms and 2 bathrooms;
• Outside: garden, swimming pool, car park for 2 cars;
• Nearby: school, green areas, pharmacy, hospital, beach, cab rank, public transport, children’s playground, bank, shopping center, city center, supermarket, police station;
• Additional characteristics: covered car park, fence around the premises, open-air swimming pool;
• Energy rating A.

A 6-bedroom villa in Lagos (municipality of Lagos, Faro district) — 575,000 €

A three-story villa in the town of Lagos sits on a large land plot of 639 m² in size. The living area is 215 m² and the entire villa is well-lit thanks to large windows.

The villa has 6 bedrooms, which makes it ideal for a large family or for those you like having guests. All the bedrooms are spacious and comfortable and they provide nice personal areas. In addition, there are a few common areas including a large living room, a dining room, a kitchen, and a recreation area.

The location of the villa is simply perfect. It is close to supermarkets, restaurants, cafes, shopping centers, and so on. The villa is located in a quiet and safe neighborhood. You can live there in comfort or rent the rooms to tourists.

Characteristics of the property:

• 6 bedrooms on 3 floors;
• space:
  • total — 275.6 m²;
  • living — 216 м²;
  • land plot — 639 m²;
• There is a garage;
• Energy rating D.

Tendencies in the Portuguese real estate market

According to the National Institute of Statistics (Instituto Nacional de Estatística, INE) real property prices continue to grow in Portugal. However, the growth rate is slowing down.

In the second quarter of 2023, the average price of property was 1,629 euros per square meter. This is 9% more than in the same period a year before and 7.6% more than in the first quarter of 2023. At the same time, the price was growing slower than before. 17 of the 24 largest Portuguese municipalities (with a population of more than 100,000 people) saw slowdowns in the price growth rates in the second quarter of 2023. The number of such municipalities was 14 in the first quarter of the year.

In some municipalities, growth rates fell by more than 10%. For example, Barceluche saw a decrease of 17.8%, Loures of 11.6%, and Odivelas of 10.3%. The prices in some other municipalities were going in the opposite direction, however. For instance, property prices grew by 20.1% in Funchal and 12.3% in Matosinhos. Prices also grew 7.1% higher in Porto and 3.7% higher in Lisbon.

Property prices are the highest in the following Portuguese municipalities: Lisbon (4,275 euro/m²), Cascais (3,902 euro/m²), Oeiras (3,166 euro/m²), and Porto (2,857 euro/m²). The table below shows the average property prices in Portugal between 2020 and the first half of 2023 (the statistics for the second half of the year is not available yet).

Foreigners buy the most expensive residential property in Portugal paying more for it than the locals do (about twice as much in Lisbon in particular). According to the INE, the average price of property sold to non-residents of Portugal between April and June of 2023 was 2,409 euro/m². This is 5.1% higher than the price in the same quarter of the previous year. Portuguese citizens paid 1,588 euro/m² on average, which is 8.7% more than in the same quarter of 2022.

Official data also show that the average price of property purchased by foreigners in Porto was 61.3% higher than the price of property that Portuguese citizens bought in the city. In Lisbon, the price was 91.6% higher. According to the INE, the Alentejo was the region that recorded the largest property price difference as far as foreign (€2,266/m²) and Portuguese buyers (€905/m²) are concerned. The difference was 150.4%!

Property prices have been growing faster in Portugal between 2010 and 2023 than in most other European countries

According to the IÉSEG School of Management (Lille, France), property prices have almost doubled in Portugal since 2010. The prices have been growing at faster rates that they have in most other countries in Europe.

In 2023, Portuguese property cost 95.5% more than it did in 2010. At the same time, in the neighboring country of Spain, the prices grew only by 0.9%. The figures for some other European countries are as follows: France + 33%; the Netherlands + 46.7%; Germany + 79%.  

However, analysts believe that the growth rates are going to slow down in the near future. In an announcement made in October 2023, Antonio Costa, the Prime Minister of the country promised to dismantle the Portuguese Non-Habitual Residence program (Residente Não Habitual, RNH) in 2024. This is a special tax regime available to newly established fiscal residents of Portugal. Serious tax incentives have been offered to foreigners relocating to Portugal and acquiring fiscal residence in the country since 2009. The program was launched in response to the global financial crisis that was especially hard for Iberian country. The aim of the program was to attract wealthy people from other countries in Portugal.

There is a general feeling, however, that the RNH program has been driving the property prices up in the country. At least, it is believed to be one of the main reasons why the prices have grown so significantly. If this is true, the termination of the program should slow down the growth rate.

IÉSEG analysts note, however, that even though foreign investors have driven up secondary housing prices in Portugal significantly, the same cannot be said about new developments. The prices of newly built houses have been growing at very much the same rate in Portugal as they have in other European countries.  

If we consider the period between 2010 and 2023 we will see that the price of new houses grew by 65% in Portugal, 31.1% in Spain, 38% in France, 71% in Germany, and 89% in the Netherlands.

The European Central Bank (ECB) began raising interest rates in July 2022. This led to an increase in mortgage interest rates and, consequently, a drop in demand for residential accommodations in Europe. As a result, property prices went down in many European jurisdictions between Q3 2022 and Q2 2023. We have to note, however, that the prices in Portugal grew over that period, contrary to some other countries in the region.

If the IÉSEG figures are correct, the average price of secondary housing in Portugal grew by 5.7% between Q3 2022 and Q2 2023 while it went down by 9.8% in Germany, 5.8% in the Netherlands, and 2.8% in France in the same period. The price of residential accommodations in newly built houses grew by 3.8% in Portugal, 1.7% in the Netherlands, and 0.5% in France. The price dropped by 5.8% in Germany.  

Even though the price growth rates are high in Portugal, the absolute figures tell a different story. Look at the prices of the villas that we have described above: they are comparatively low! A bit more than half a million euros for a six-bedroom house? That’s a real deal! Please do not hesitate to contact us if you would like to learn more about investment opportunities in Portugal or elsewhere. We will respond promptly whatever means of communication you choose.