Lisbon holiday homes: Portugal’s tax breaks for foreign buyers makes it a good time to invest in the ‘California of Europe’

Rock-bottom rents, tax breaks for home buyers and the rise of coffee-fuelled start-up districts have earned Lisbon, the Portuguese capital, the nickname “the California of Europe”...
“The California of Europe”: like San Francisco, Lisbon boasts an iconic bay bridge
Shutterstock / M.V. Photography
Emily Wright22 October 2016

Lisbon? Yes, this quaint and rather ramshackle city may not be San Francisco exactly, but it does have a striking and iconic red bay bridge and is attracting big-name tech companies.

Shoreditch-based Second Home will open its first overseas outpost in the city this month and Web Summit, one of the world’s biggest and most influential technology conferences, held in Dublin since its launch in 2010, will move to Lisbon next month.

The city’s buzzing tech scene is just the start. After years in the financial doldrums since the global recession, cheap rents and Lisbon’s “next big thing” status have fuelled record levels of property investment. Sales volumes leapt an astonishing 130 per cent last year with 95 per cent of the investment coming from overseas.

With similar numbers expected this year and a host of tax breaks for foreign buyers seeking out residential property, the great Lisbon love-in shows no signs of a slowdown. This is the story of how one city is driving the recovery of a country left decimated and bankrupt following the worldwide financial crisis.

Buzzing: the city’s street café and bar scene
Alamy Stock Photo

It is a recovery that is being bankrolled almost entirely by foreign investors desperate to get in on the act before prices exceed pre-recession levels. They are currently at about £16 per square metre a month for office space and £2,250 a square metre for homes.

FOREIGN MONEY’S PILING IN

“Everyone is talking about Lisbon now,” says Arthur Moreno, co-founder of Lisbon-based developer Stone Capital, a restoration specialist. The company is focused on bringing the sherbet-coloured period townhouses lining Lisbon’s steep cobbled streets back to life, ready to be snapped up by foreign buyers who are led by the French, British, Brazilian and South Africans.

“Suddenly the city is fashionable,” he adds. “The time to buy is now because as more people look to invest, the more expensive it will become.”

Lisbon’s linked up: Gare do Oriente train, bus and metro hub
Alamy Stock Photo

For now though, affordability remains a huge part of the attraction. Even at the highest end of the luxury spectrum, prices are about £7,200 a square metre, compared, for example, with £10,000-plus in London’s most expensive boroughs. And this is for super-deluxe.

And if that wasn’t enough of a draw, since 2013, two major schemes have been making life even easier for foreigners to buy homes in Portugal: the Golden Visa — residence in the country for an investment of at least £450,000 — and the non-habitual residence (NHR) tax. The former has been very popular with the Chinese. In 2015, 573 visas were granted to Chinese buyers, who make up 87 per cent of all applicants.

UNFAZED BY BREXIT

Traditional charm: Lisbon’s Glória funicular railway in Barrio Alto
Shutterstock / Marcin Krzyzak

The NHR tax is also luring fresh investment from France, Germany, the Nordic countries and the UK. “The NHR allows you to become a fiscal resident in Portugal whenever you want,” says Frederico Mendoça, property agent CBRE’s head of residential in Lisbon.

“The only rule is that you need to own property and live here for six months and one day a year. If you do that, Portugal gives a 10-year exemption on any taxes on most incomes and, if you earn over a certain amount, you will pay only 20 per cent. If you are retired? Again, no tax on savings for 10 years. This has been particularly attractive to the French.

“Of the 120,000 deals in Portugal a year, 80 per cent are residential with about 22 per cent made up of overseas money. UK buyers used to be the most active but since 2013 that has changed. Now, of that 22 per cent, 26 per cent are French, 20 per cent are Brits, 15 per cent Chinese and nine per cent Brazilian.”

£1,076,000: apartments in Castilho 69, being fully refurbished with completion next year. Through Quintela & Penalva

Once the most active buyers of Portuguese homes, especially in Lisbon, the British have long been a crucial part of the country’s economy. How will that play out post-Brexit? Portuguese agents and developers, unfazed, agree the influx of overseas cash since 2013 from other countries, particularly France, will lessen the blow.

That and the fact that with Portuguese property still so cheap by UK standards they don’t see a price rise putting off British investors on a grand scale. “We still haven’t reached the peak on investment,” says Mendoça. “There is some way to go. By any standards Portugal is a good investment.”

Emily Wright is the global editor of Estates Gazette.

£290,000: flats in Boavista 62, due to complete next summer. Through Quintela & Penalva
£290,000: flats in Boavista 62, due to complete next summer. Through Quintela & Penalva
From £470,000: two-bedroom flats at Park Avenue, a new apartment scheme. Through Cobertura