But the big question for most expats landing on Portugal’s crystalline shores is whether they should buy or rent their new home.
While it may seem like a simple question for many, there are several factors to bear in mind, particularly given the current social and political climate in Portugal and the world at large. So, before you make your decision, here are a few things you should bear in mind when deciding if you should buy or rent a home in Portugal in 2023.
Sky High Prices
The aftermath of the COVID-19 pandemic, the uncertainty of the war in Ukraine, and various other factors have lead to towering interest rates and inflation. While this isn’t only true of Portugal this year, the Portuguese housing market is currently booming. With a huge amount of foreign investment in recent years, thanks to programmes like the Golden Visa, house prices have been rising at an astonishing rate. A combination of this and the current inflation situation means that, if you are purchasing a property in Portugal right now you’re going to pay a lot for it.
That being said, in light of the recent announcement that the Golden Visa is coming to an end, and the fact that economies are - as a whole - starting to right themselves following all the upheaval, it seems likely that house prices in Portugal are about to drop, making it a poor time to invest in the property market.
Renting a home while you wait for house prices to drop may ultimately prove to be a cheaper option than losing a huge chunk of the value of your new property. This is particularly true if a house purchase would tie you into current interest rates, which are staggeringly high.
A drop in market value is always the gamble we take when investing in the housing market, but given the current socio-economic climate in Portugal - not to mention the rest of Europe and beyond - it’s an even more important factor to consider this year.
Buying Vs Renting For The Digital Nomad
While the Golden Visa may have come to an end, the Digital Nomad Visa is still going strong. Those taking advantage of this scheme, as a means to live in the country for a year or two, may be better off renting to avoid all the stress, paperwork, and charges that come with buying a house.
The flip side to this is if you plan to retain the property once you’ve left residency. You may have plans for a holiday home to return to once your visa expires, or intend to renovate and resell while in residence in order to earn money on the sale.
For potential holiday home owners it’s important to be aware the government has recently banned new rental licenses for Airbnb and other short term rentals. This was done in an attempt to ensure more affordable housing for locals, but may make it tough - if not impossible - to rent out your property in the months you are absent, once you’re no longer in permanent residence.
The other obvious factor to consider here is your current financial situation. Before you decide to buy a house in Portugal, consider your income; is it guaranteed or unpredictable? If you’re confident you’ll be able to make your mortgage repayment on time, consider your effort rate; generally speaking this should not exceed 35% if you’re looking to buy. When making this calculation, don’t forget to factor in all credit expenses, not just your potential mortgage.
If you decide to go ahead, your next hurdle will be your deposit. While it’s natural to face this issue on any house purchase, you’re very unlikely to get a bank to lend you more than 90% of the value of your house. Realistically, you may be looking at only 80%, and this can be considerably less for non-residents. Make sure you can comfortably afford the deposit that will be required.
Beyond that, you will also need to factor in the need to cover the costs associated with your purchase. This includes paying for stamp duty, the deed and registration of the house, and council tax.
For more financial advice on moving to Portugal and navigating cross-border issues, please contact our Lisbon office on +351 214 648 220.
At Blacktower we have advisers who specialise in a variety of different areas and services as well as being well-versed in the regulations and tax efficiency of different jurisdictions and countries. We can be there at every step of the way to assist you in changing circumstances and priorities. If you’re unsure what services would be beneficial or have any questions about the financial advice process, get in touch to arrange a complimentary, no-obligation consultation today.