After Portugal lured wealthy foreigners with investment incentives, the government is trying to stem a buying frenzy that has sent home prices skyrocketing.
Housing costs in Lisbon rose 5.8 percent in November to a record 5,426 euros ($5,963) per square meter, according to data from Idealista. This is the second largest increase in Europe after Athens, the hottest real estate market among major European cities tracked by Bloomberg.
After rising by almost 30% over the past five years, residential property in the Portuguese capital is more expensive than Milan, Madrid and Berlin. This makes a new home unaffordable for most Lisbon locals and shows how supply often outpaces interest rates in setting prices.
Portugal’s government has begun to reverse course, ending the country’s golden visa program and approving a plan to reduce tax incentives for new residents. But with a sunny climate and prices around half those in Paris and Zurich, efforts to curb demand have had little impact.
“Despite these changes, we have seen an increase in the number of inquiries from our foreign clients,” said Paulo Silva, head of real estate consultancy Savills in Portugal. “There just aren’t enough homes to meet the demand, even though sales have slowed.”
While the end of the era of cheap money has hit purchasing power across Europe, a lack of supply is affecting prices in many cities. Six out of ten markets tracked by Bloomberg City Tracker are growing.
Athens is seeing year-on-year property price growth of almost 12%, Stockholm more than 5% – marking six consecutive months of growth – while Madrid and Milan prices are still growing steadily at more than 3%. The weakest performer was Paris, down more than 6%.
To capture the latest trends in the housing market in European cities, Bloomberg collects data from a number of providers. Some ask for interest rates and indicative levels, while others are official trade data.
Lisbon became a hot spot for investment after its financial adventure ended in 2014. At the time, the government abolished rent controls and introduced the golden visa – a path to housing in exchange for a €500,000 property investment – along with tax breaks that attracted new residents.
Soon after, thousands of foreign buyers flocked to Lisbon in search of bargains as the country recovered from the financial crisis. Among them was Swiss billionaire Claude Berda, founder of French broadcaster AB Groupe. In 2016, he teamed up with local investor Jose Cardoso Botelho to buy their first plot of land on one of Lisbon’s seven hills.
“We were taking a selfie with the Tagus River behind us when we noticed a small sign: ‘for sale,'” said Cardoso Botelho. We shook hands and that’s how it all started.”
The two founded the Lisbon-based company Vanguard Properties and have since built nearly a dozen residential buildings in the city of half a million people. Demand was so strong that they often sold out before they were even produced.
Cardoso Botelho says the long wait for a building permit – eight years for one of his plots – has caused much of the shortage. Red tape means Vanguard has no units to sell next year after delivering more than 500 apartments in the past two months – almost half of which went to foreign buyers.
Unchecked real estate costs have prompted Portugal to end golden visas
In 2022, the number of available homes in Portugal will reach its lowest level in 15 years, according to Confidencial Imobiliario, which collects data on the real estate market. Social housing represents only 2% of the total population – one of the lowest in the EU.
Meanwhile, the average price of a new home in Lisbon has overtaken Dublin and Brussels, according to the Deloitte Property Index 2022. For many Portuguese families, whose wages are among the lowest in Western Europe, the dream of buying a home has been replaced by an expensive, neglected rental in the outlying suburbs.
The example of Lisbon shows how difficult it is for governments to control house prices. While demand can be driven by incentives, supporting supply takes time and money, and striking the wrong balance risks boom-and-bust cycles.
Concerns are growing that today’s rising prices could soon reverse. Portugal’s central bank said last month that banks should build additional capital buffers to cover potential housing-related losses. The move comes after home sales in Portugal fell 22% in the first six months of the year, according to real estate services provider Jones Lang LaSalle.
With home ownership unaffordable and rents skyrocketing, more and more Portuguese are living in precarious conditions. About 40 tents have been set up in Quinta dos Ingleses – a small wooded area on the outskirts of Lisbon.
“Every day there are new people,” said Filipe Silva, who coordinates the homeless program at a community center in the parish of Carcavelos, outside Lisbon. “These are mainly people who work but are unable to pay for housing.”
The land is located next to the elite Nova business and economics school and an English school where tuition fees can exceed €1,000 per month. Rising inequality has fueled tensions, with thousands taking to the streets earlier this year to protest the housing crisis in Lisbon and other Portuguese cities – echoing frustrations elsewhere.
Portugal’s socialist government responded by promising to increase the number of affordable homes and end incentives for foreigners. Outgoing Prime Minister Antonio Costa says these programs encourage property speculation. But taking Portugal off the market may not be so easy.
“Ultimately, the country’s warm climate, stunning beaches, lifestyle and relatively low cost of living will continue to attract foreign investors,” said Pedro Coelho, chief executive of real estate investment firm Square Asset. Management.
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