Tag Archive for: Investment & buy-to-let (BTL)

What are the main reasons to do buy-to-let investment in general and Portugal specifically? Is it for me?

Intro

Before and after moving to Portugal you have probably come across articles, posts and videos telling you the reasons to buy real estate in Portugal. Many of those, of course, are authored by real estate agents who would like to sell you a house. They might include facts and good reasons for buying or just state the obvious triad of sun, beaches and food and try to derive a rationale for buying from that.

A lot will surely be relevant for you in regard to moving to Portugal, but let us have a look at the factors that determine whether Portugal is also a good place for your money.

We will start with general reasons which give buy-to-let investment an advantage over other investment opportunities and then see if there are any additional advantages that apply to Portugal more than to other countries.

Focus in this post will be on reasons and, hence, advantages. Follow the respective link if you would like to learn more about the 5 biggest threats to the real estate market in Portugal in 2023 or the troubles that the Governments housing law package ‘mais habitação’ might bring.

The terms investment and buy-to-let will be used interchangeably.

What are the main reasons to do buy-to-let investment in general?

Investing in buy-to-let has some advantages over other types of investment. These are not universally true but apply to most developed markets and buildings most of the time.

Cash flow and passive income

On the top of the wish list of many digital nomads and part-time investors is passive income and cash flow respectively. Despite the obvious required tasks that are still needed, like search, selection and financing process as well as various property management tasks, real estate is very suitable to generate a constant, long-term and low maintenance income stream.

Further, many tasks can be outsourced to advisors, which can make it even easier to implement.

Capital appreciation and leverage effect

On top of the above-mentioned cash flow returns there is a fair likelihood that the value of your asset (meaning house, apartment etc.) increases in the long-term. Although this is usually hard to cash in on without selling it builds and stores wealth.

This is even more the case when debt financing is applied, since the value increase applies to the market value of the total investment which is higher and often a multiple of the invested equity. This is also known as the leverage effect and we will shed light on that in a future post.

You might argue that a big share of the mortgage rate go into interest payments which you will never see again. However, you still have the returns:

  • Firstly, the difference between the income of the property and the costs of the mortgage.
  • Secondly, the part of the monthly rate that is the repayment.

Taxation

Depending on your personal tax rate this may or may not apply to you. In many countries taxation of real estate investments is more favourable compared to other asset classes because it is often considered a retirement provision. Regulations vary and it may be worthwhile to stay on top of the topic to align your decision with it.

Often tax advantages come in the form of:

  • reduced capital gains tax at sale after a certain minimum holding period or when the reinvestment meets certain criteria
  • reduced tax for buildings under monument protection or in dedicated development areas
  • increased write-off options to reduce the taxable profits
  • deductibility of costs to reduce the taxable profits
  • special deductibility or direct subsidies for improvements of energy consumption
  • reduced tax for rent coming from affordable housing
  • tax reductions to transform short-rentals to long-term rentals

In Portugal some of these are about to change with the implementation of the housing law package ‘mais habitação’.

Volatility

Since the underlying factors which determine the performance of real estate are rather slow and the market is very large, volatility is lower than in many other asset classes. This is also supported by the fact that property is not very liquid (or tradeable) and often held long-term.

Inflation

Often called an inflation hedge, one reason for buy-to-let investment is that it offers relatively good protection against inflation. This will depend on the type of real estate, rental law as well as the tenancy situation. However, the following contributes greatly to safeguarding your money:

  • Firstly, market rents (the rent that a unit could be let at) move freely, so at time of high consumer inflation and-or rising incomes, new lease contracts are entered into at respective higher rents. Each time a lease ends and a re-letting takes place this can be repeated.
  • Secondly, most lease contracts have an indexation clause which links them to consumer inflation. Variations of it also exist, e.g. step rents (fixed increase) or rent updates according to market rents. Even when these often cannot reflect the entire inflation, the adjustment is much better than in many other investments.

Limitations often occur when governments apply rent caps trying to maintain affordability. In Portugal, an example of this would be parts of the housing law package ‘main habitação’.

What are the reasons to do buy-to-let investment in Portugal specifically?

There are some reasons for doing buy-to-let investment that currently apply more to Portugal than top many other European markets.

Supply and demand

In Portugal, more than in many other European real estate markets, limited supply meets rising demand. A lengthy licensing process, one of Europe’s highest GDP increases, rising average incomes and a strong immigration have led to annual double digit increases in rents and sales prices in Lisbon and some other locations.

Whereas most countries in the EU face stagnating decreasing property values, Portugal has only seen a slower increase and current forecasts expect a moderate decrease of 3% that is yet to be seen.

Further, the governments housing law package ‘mais habitação’ has the potential to put further pressure on housing supply.

Market development

The Portuguese real estate market has become significantly more professional, international, transparent and investible over the past 10 to 15 years. This was also supported by politics that incentivise investment and create stability for market participants.

Affordability

Often foreign investors plan to divest in their home market and invest in Portugal after they have moved. What becomes obvious during that step is that, despite being exceptionally expensive for locals, real estate purchase in Portugal is still rather affordable for foreigners. This shows in absolute terms (price of a unit), in square meter terms (price per sqm) and in rental returns (yield):

  • Instead of one apartment you can often buy a building and maintain more control over your investment.
  • Instead of buying a unit in a secondary location you can often buy in a prime location.

International attention

This is a relatively soft factor, but should not be underestimated.

Despite being rather small country the international attention of media, tourists, digital nomads and immigrants is significant and poses a relevant support to the economy and, therewith, the real estate market. It benefits the important hotel & hospitality sector, allows Portugal to attract foreign investment and direct funds to areas of the economy that need improvement. This strengthens employment and support incomes and eventually the real estate market.

Is buy-to-let investment in Portugal for me?

As you will probably already have learned from other posts on Real Estate Bricks, this will always depend on your personal risk-return-profile.

Compared to some markets, where foreigners typically come from, Portugal is a bit less transparent and professionalised. Although this is constantly improving, real estate investments in Portugal have higher risks and higher returns.

Always consider the risk exposure that suits your lifestyle, the mix with other investments as well as diversification of investment types or even real estate types.

Also, what should be kept in mind is that the investment process as well as potential refurbishments and the property management may be more difficult than in your home country.

Be honest to yourself and define the amount of risk and hassle you are able and wiling to deal with.

Conclusion

If you have made all of the above outlined considerations and still find yourself optimistic about making buy-to-let investments in Portugal you can benefit from some untapped potential and achieve higher than usual returns from a very dynamic rental market and strong capital appreciation.

Stay informed about the market, understand key topics such as the housing law package ‘mais habitação’ or transparency of the national real estate market and sign-up for the Real Estate Bricks newsletter.

If you are looking for advice that helps you to understand the Portuguese market, limits your risks, supports your buying process or you want to get connected to other services along the investment process, drop us a line.

In case we put you in business with 3rd-party servicers we may collect a referral fee from them.

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Transparent vs opaque real estate markets: What are the differences, why does it matter for you as a buyer and what is the level transparency in the property market in Portugal?

Intro

Have you ever wondered:

  • How has the sales price of T4 apartments in the city of Porto evolved over the past 15 years?
  • What is the net yield of a prime apartment in Lisbon?
  • What is the rent which the commercial unit next door was rented out for last year?
  • What are the forecasts for residential prices in secondary locations of Lisbon?
  • What are the benchmarks for ancillary costs for office space?

If you came to Portugal from one of the countries with a high level of transparency in the real estate market, like England, France, Australia or the USA, you probably have already unsuccessfully searched for data on these or similar questions.

Despite Portugal’s recent evolution in market transparency, foreigners from more transparent countries should take extra care of understanding and managing the differences.

Although real estate market transparency cannot be changed much by an individual, every buyer should familiarise themselves with the market environment they act within. Knowing what you are getting into before logging in your capital is crucial. In many countries, and Portugal is no exception, foreigners often make naïve decisions and enter unnecessary risk and costs.

Transparent markets vs. opaque markets

In one sentence, the difference between transparent and opaque real estate markets is the availability of information.

In transparent markets you will easily find reliable, detailed and standardised information for the present and past. In opaque property markets that information is rare, often has no standardised definition or underlying calculations, refers to wider geographies rather than to micro locations and the historic equivalent is only available for a few years rather than two or more decades. The leading publication to evaluate and report on the transparency level of the worlds real estate market is JLLs Global Transparency Index. The main factors it assesses reflects quite well what makes the difference:

Table listing 14 transparency topics or criteria classified into 6 sub-indices: performance measurement, market fundamentals, governance of listed vehicles, regulatory and legal, transaction process and sustainability.
Source: JLL Global Transparency Index, 2022 by JLL, LaSalle, 2022

Market participants often notice differences for the first time when they get in contact with real estate professionals. More transparent markets are much more professionalised, have higher access barriers for advisors, tighter regulations of provided services and higher clarity and efficiency in all aspects of service delivery.

Why does it matter for you as a buyer?

As mentioned in various posts on Real Estate Bricks, real estate investment is all about risks and returns. Market participants need to understand and try to minimise an investments risk while figuring out and trying to maximise the respective returns.

An investor, who prepares to make an investment, for instance, will do a thorough analysis of the market, the potential investment, its tenancy as well as the expected costs and income in the future. To do this data on all aspects will be needed. The more reliable data there is, the better and more realistic the analysis will be.

Reversely, this means that, in an opaque market, the assessment of risks and returns becomes vague and often nearly impossible. This creates market inefficiencies and risk for all market participants.

This does not necessarily mean that you should only invest in transparent market. Great gains can be made despite and often because of opacity. However, you should always understand as much as possible about a potential investment, its market and how it relates to your personal risk-return-profile.

What is the level of transparency in the property market in Portugal?

Portugal has been categorised by JLL as a transparent market (second best of five categories) market for the past 12 years. It was on place 19 of 81 in 2010 and currently holds 24 of 94.

However, what should be noted is that Portugal improved its score from 1.82 (2010) to 2.37 (2022) on a scale of 1.00 to 5.00 with 1.00 being the best.

On one hand this is in line with the global trend – most countries’ transparency score improved. On the other hand, this is also the result of measures and trends specific to Portugal, as, for example, improvements in laws and regulations, increasing foreign investment and a constant rise of market activity.

Here are some of the countries from which people have moved in high numbers to Portugal in comparison:

Rank (1-94)CountryScore 2022
1United Kingdom1.25
2United States1.34
3France1.34
9Germany1.76
16Hong Kong SAR1.98
24Portugal2.37
30China (Shanghai and Beijing)2.54
35Israel2.66
44Brazil2.97
79Angola4.30
Source: JLL Global Transparency Index, 2022 by JLL, LaSalle, 2022

Note that within all countries, there can be significant differences between sub-markets. A sub-market could be, for instance, a geography (e.g. London City) or a real estate asset class (e.g. residential Netherlands).

Those differences of transparency within countries are often results of a high number of listed companies or funds (since they are obliged to collect and publicise lots of information) doing many transactions and maintaining portfolios of specific assets. Another factor is foreign investment, since investors from more transparent markets not only demand more information, but also produce (through transactions), collect and share more information when they enter the more opaque markets. Within Portugal, the more transparent sub-market are Lisbon and the Algarve with residential, offices and hotels being the most transparent use-types.

Conclusion

Real estate market transparency can vary a lot between countries. Overlooking these or not taking them seriously can create unnecessary risks to your investment. It is important to understand that many of the factors that impact this are macro factors, meaning they are not very obvious when analysing a single apartment or building, but the impact can be large and long lasting.

As an investor, you should always be aware and work out your appropriate risk-return-profile.

Also, keep in mind that the less transparent a market is, the more experience and informal information matter. Therefore, try to work with experienced local advisors, because their skills and knowledge can reduce gaps that publicly available knowledge leaves.

If you would like to understand your personal risk-return-profile and if investing in Portugal is suitable for you and your investment goals, we can assist or refer you to an expert.

Contact RCP to discuss a potential service proposal or get linked to respective experts.

In case we put you in business with 3rd-party servicers we may collect a referral fee from them.

Further reading on the topic in English

The above combines the references publication with the authors primary and secondary research as well as his professional experience.

A good read (in English) on the topic is:

Link: JLL Global Transparency Index

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What are the 5 biggest threats to the residential real estate market in Portugal in 2023?

Intro

Once one of Europe’s worst performing economies and housing markets, Portugal has shown a remarkable upswing over the past 10 years and, more recently, resilience against some of the covid-related as well as post-covid challenges.

Shaken up by international and national issues many investors ask themselves if it’s now all over and the market is about to plummet as rapidly as it rose.

‘One man’s joy is another man’s sorrow’, meaning that you could also say that something that poses a threat to one investor is an opportunity for another one.

In the following we understand threats as any disruptive development that reduces the performance of the market rather than just specific groups of market participants.

We will look at arising opportunities in troubled markets in separate posts if and when the discussed threats gain traction in the market.

Political threats

Whilst not the most obvious threat to residential real estate investment markets, political factors impact all areas of life and are on of the most important framing factors.

Traditionally, but especially in the past few years leftwing parties represented the majority in parliament. One of their goals has been to improve the populations’ living conditions by increasing regulations of parts of the economy.

In 2023 the housing law package ‘mais habitação’, drawn up in March and very likely to come into effect end of October, changes significant parts of the investment environment. Some of the most severe changes regard short-term letting, Golden Visa, licensing, forced letting and rental caps.

Not only do these measures have direct impact on supply and demand as well as prices; they also shake investors’ confidence and have the potential to reduce future capital inflows and, hence, property prices. One of the major factors to attract international capital are political stability and a favourable investment environment. Therefore, short-notice and strong changes can have a strong negative reaction.

What is more, some of the planned measures have not yet been worked out all the way to the practical implementation. That means that at least for the end of 2023 and maybe beyond friction and unclarity remains around fundamental topics such as the licensing process.

Economic threats

Like most countries and asset classes, the abrupt rise in interest rates creates difficulties for many market participants. Since interest rates are decisive for investment decisions, values and the costs of financing the impact is very strong.

The consequences will only become visible with time since many occur with time lags.  

This can lead to gaps between sellers’ and buyers’ pricing expectations which may not be bridged in the short term and the transaction market get stuck with the situation (as it is already the case in most European commercial real estate markets).

However, this threat may be offset or even reversed if mortgage rates are updated (most private mortgages are not fixed) and many owners are forced to sell at the same time.

Market threats

Firstly, more and more investors remain in standby position since they expect pricing corrections as a result of interest rate changes.

Secondly, the termination of real estate investment as a path to obtain a Golden Visa removed a share of the demand from the market.

Thirdly, domestic demand is very dependent on debt conditions which have worsened significantly.

The above market threats, amongst other factors, have already contributed to a slowing dynamic in Portugal’s residential market – apartments remain longer in the market and the rise in prices has been much lower in Q2 2023 than in most quarters of the previous years.

Legal threats

Parts of the above-mentioned housing market law package ‘mais habitação’ is a change in the licencing process, which is designed to ease and speed up the licensing. However, some of the details have not been entirely defined, which means an adjustment period with some insecurity regarding responsibilities and steps may hamper the process before it becomes a routine for all stakeholders and gets more efficient. This will affect new construction and refurbishments that require a licence from the municipality.

In the medium-term to long-term it can be expected that more licences will be granted quicker, which increase supply of residential space to the market. This may put pressure on the sales prices, however, there is a fair likelihood that there will not be surplus supply.

Construction cost threats

Lack of qualified labour and strong demand for construction services have already caused costs to increase year after year before covid. With the beginning of the war in Ukraine building materials have become more expensive and drove those costs further up.

In addition, labour costs are still rising supported by high inflation in correlation with high interest rates. Further, demand for construction and refurbishment services remains strong.

The above combined with pressure on house prices can led to decreasing margins for developers and owners.

Ownership threats

Most of the above will affect owners of residential real estate more indirectly than directly. However, there are some direct threats that owners should have on their radar in 2023.

Firstly, this would be the new law contained in ‘mais habitação’ that allows for the forced leasing of permanently vacant residential units. It limits the owners’ options to use their property as planned and may bind to an unfavourable tenancy which they have to stick to.

Secondly, with 2023 bringing some summer temperature records the requirements for isolation of façades, windows, doors and roofs as well as technical parts, such as air conditioning are rising. Buildings which do not fulfil these requirements may face limited rentability and saleability in the future or respective works need to be factored in.

Conclusion

2023 is undoubtedly a year with some unusual threats to residential real estate markets in Portugal.

These include threats on the macro level, such as politics and the economic environment, but also some specific to the real estate market and its legal framework. Depending on the respective market participants construction cost threats and challenges for existing owners add to that.

It is important for aspiring investors as well as owners to keep an eye on upcoming changes and evaluate options for action and react timely where necessary.

However, some of these threats are still in their infancy and may not come through as strong as expected at all.

It should be remembered that Portugal’s, and especially Lisbon’s, residential market still benefits from limited supply and stable demand which can keep many problems away. This applies to the sales market and even more so to the rental market and, hence, which adds an additional layer of safety.

If you would like to:

  • Get assistance on potential acquisitions and arising opportunities,
  • Analyse your existing assets in regard to your risk exposure,
  • Assess the impact of the above or other threats on your planned investment or
  • Evaluate your options for action in the Portuguese real estate market

just contact Real Estate Bricks to discuss a potential service proposal or get linked to respective experts.  

In case we put you in business with 3rd-party servicers we may collect a referral fee from them.

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What can a buyer’s agent in Portugal do for me that I cannot do myself just as well?

Intro

Depending on where you are from and how active you have been in real estate purchasing you may have come across buy-side services (sometimes called acquisition services) provided by so called buy-side advisors or buyer’s agents (different terms for the same thing).

Ironically, buy-side advisory is better known and more frequently used in more transparent, and therefore less risky and more accessible, markets. This is because transparent markets are more diverse and professionalised and therefore have given rise to a wider range of services and roles.

But let’s get on it and see why how a buyer’s agents can add value to your property investment.

This post refers to buyer’s agents instructed by the buyer (you will find more details on the different roles and their typical compensation here). If you would like to learn more about the differences between real estate agents and valuers you will find a comparison here.

Areas covered by buy-side advisors

Most investment topics circle around risks and returns. You would always want to understand and evaluate those two whilst minimising risks and maximising returns.

Identify, understand, avoid or quantify risks related to:

  • Politics (e.g. law package ‘mais habitação’)
  • Economy (e.g. labour market, affordability)
  • Submarkets (e.g. up-and-coming areas or neighbourhoods in decline)
  • Building (e.g. condition, maintenance and condominiums)
  • Tenancy (e.g. potential rent, leasing options)
  • Legal (e.g. encumbrances, contracts)
  • Construction (e.g. licensing, potential refurbishment)
  • Financial (e.g. interest rates, asking price vs. value)

Tip: The above risk will have to be on every buyer’s radar. However, if you are a digital nomad intending to invest in Portugal, you might want to check out our post on risks specific to digital nomads.

Professional advisers will help to avoid common mistakes, such as:

  • Using the asking price as market value (overpay)
  • Not understanding pricing (insufficient comparison to other options)
  • Understand letting situation (gap in returns as result of wrong estimate)
  • Over-estimate potential returns (e.g. mistake rent as the return after tax and operational costs)
  • Rely on sellers or sell-side brokers advise (their interest contradicts that of the buyer)
  • Not include further advisors (hidden problems can be costly risks)
  • Buy based on personal taste (and get disappointed when selling at later point)

Services provided by buy-side advisors

General

Potential services that may be requested span anything between the first investment intention all throughout all details of the purchase to after-sales support and sometimes even implementation of the property business plan.

However, covered geographies and topics as well as competencies vary greatly between advisors.

Before the property search begins

  • Understand clients situation and goals
  • Discuss potential submarkets and property types
  • Define a client-specific investment approach and derive a search profile
  • Think outside the box to include less obvious opportunities

Identify potential properties

  • Observe market online (e.g. Idealista, Imovirtual)
  • Maintain contacts to brokers and check on upcoming sales
  • Draw from personal network to identify off-market opportunities
  • Quick checks, calls and viewings as appropriate

Analyse investment opportunities

  • Collect and apply relevant research and informal information
  • Be aware of market developments and anticipate what happens before it is visible
  • Apply personal experience
  • Evaluate and compare investment opportunities qualitatively and quantitatively
  • Benchmark by comparing research data, market rents and costs data with the property in focus
  • Work out a property specific business plan
  • Prepare financial analysis (and-or BOV, a brokers opinion of value, or valuation model) pricing in any risks as well as future costs and returns
  • Understand value as-is and prepare potential scenario analyses, e.g. for the impact of the law package ‘mais habitação’ in regards to short-term letting, taxes and rental caps
  • Fill knowledge gaps the client may have and act as sparring partner where necessary

Manage the purchase process

  • Negotiate with the seller or their broker together or on behalf of the client
  • Act as single point of contact and monitor timing and quality of input from all advisors:
    • Lawyers
    • Tax consultants
    • Technical specialists
    • Architects and construction companies
    • Environmental engineers
    • Property appraisers
    • Mortgage brokers
    • Property managers
  • Deal with public institutions
  • Foresee problems in the transaction or with the property early on and avoid surprises
  • Make tender(s) to engage advisors
  • Organise translation of documents and contracts
  • Communicate and push and save the client time where possible
  • Bridge cultural differences and balance characters to minimise friction losses
  • Communicate with leasing agents to understand potential future tenancy options

Support post-purchase steps

  • Set up first steps with servicers, e.g.
    • Property manager
    • Leasing agents
    • Accountant
    • Architect
    • Contractor
  • Observe market to advise on potential exit timing and-or sell on client’s behalf later
  • Provide access to local network

Conclusion and next steps for you as an investor

A good buyside advisor will act as your local contact during search, transaction and, ideally, during implementation of the investment strategy. Also, they will tell you when there is a good opportunity for an advantageous exit.

However, not all advisors offer all the above services. Many may have more narrow scopes or have outstanding expertise in particular geographies, investment cases or services. Take time to analyse service proposals and understand different specialisations. Contact Real Estate Bricks to go this step with you and make a proposal or connect you to relevant advisors.

You will often find designated buy-side advisors, brokers who specialise in sales or purchases and in some cases valuers focusing on a narrow but very important part of the transaction. Reading here about the differences between agents and valuers is a good start. Would you like to explore what the above services would cost you? Find more information on brokers’ fees and compensation of real estate professionals in this post.

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Governments housing package ‘mais habitação’ part 3 of 3: measures with most impact on mortgages and a note on key interest rates and mortgage subsidies

Governments housing package ‘mais habitação’ part 1 of 3: measures with most impact on Golden Visa, short-term rental and licensing

  1. Golden Visa will not be granted for real estate investment anymore
  2. Further restrictions on use of residential units as AirBnB and other short-term rental
  3. Simplification of the licensing process
  4. Increase residential space through easing conversion of commercial space
  5. The state will make some of the land it owns, and is not used, available for the development of affordable housing

Governments housing package ‘mais habitação’ part 2 of 3: measures with most impact on the rental market

  1. Rent for new contracts is limited to 2% above the last rent
  2. Change of taxation of rents
  3. State will act as contract party in rental agreement whilst providing the space to low-income individuals
  4. State will rent residential units in the free market to sublease them at lower rent to low-income households
  5. State will subsidise rents for households in need
  6. State reduces or exempts from various tax positions when a unit is let at affordable rent

Governments housing package ‘mais habitação’ part 3 of 3: measures with most impact on mortgages and a note on key interest rates and mortgage subsidies

  1. No capital gains tax when house sale proceedings are used to pay off mortgage
  2. All banks have to offer fixed rates on home mortgages
  3. State will subsidise interest rate payments for households in need
  4. A note on key interest rates and mortgage subsidies
  5. Further reading on the topic in English

Measure: No capital gains tax when house sale proceedings are used to pay off mortgage

What does it entail?

When the sudden and stark increase of interest rates led to a respective increase of mortgage rates (often variable in Portugal) many households faces financial trouble. This measure intends to ease this and support the premature apartment sale for repayment purposes.

This measure applies to the sale of housing that is owner-occupied and the proceedings are used to pay off the subject mortgage or that of descendants. 

What does it mean for you as an investor?

This measure will almost solely affect owner-occupiers and those who use the sales proceedings to pay of descendants’ mortgages. 

From an investors perspective this may lead to occasional sale-and-leaseback opportunities. Someone selling out of financial pressure may be more likely to stay as a tenant. The buyer might benefit through better pricing (since the seller saves capital gains tax) as well as a stable tenant (already home there and financially better equipped thanks to the sale). 

Measure: All banks have to offer fixed rates on home mortgages

What does it entail?

Most of the mortgages taken out in Portugal are fixed-rate mortgages. Hence, the monthly rates depend on the Euribor (usually 12-month) plus individual spread and have risen significantly recently.

What has not posed a problem and usually was cheaper during the periods of low interest rates has now led to many households unable to pay their mortgage rates. With many annual rate adjustments taking place at the year-end this will even be more of a problem soon. 

As opposed to before, when banks could decide whether they offer fixed-rate product in addition to the variable ones, this is now an obligation. 

What does it mean for you as an investor?

For you as investor changes are limited, since fixed-rate mortgages have been around for a while. It can be expected that you might be able to find a better offer or negotiate because overall there are more choices. 

In any case, offers need to be compared. This should not only include the key points of a potential mortgage, but you should also include the fine print. 

On a different, yet related note, it is often worth to check on the small print of mortgages already taken out to see the conditions of early repayments. These can help to switch to more favourable contracts or renegotiate upon a possible termination respectively. 

Measure: State will subsidise interest rate payments for households in need

What does it entail?

This is one more measure, which was designed to ease the burden that arose for many households from the sudden and strong increase of interest rates and, consequently, mortgage rates. 

Applicable to households, who have a social support index (IAS) of 1.5 (equal to ca. 720 Euros) and a mortgage of up to 200.000 Euros, this makes a 50% subsidy on the interest payment possible. 

What does it mean for you as an investor?

This measure will only have impact on those households which meet the above criteria. 

Therefore, there is unlikely to be any impact on investors, except that this will reduce the amount of foreclosure properties coming to the market in the future.

A note on key interest rates and mortgage subsidies

Most private mortgages taken out in Portugal are based on variable rates rather than fixed rates. This means that when the Euribor changes the debtors interest rate will change (usually annual adjustment) by the same percentage. The individual spread which is added to the Euribor rate remains the same. 

Also, bear in mind that Portugal’s real estate market is in an earlier stage of development than that of most western countries. This usually translates into high a high share of owner-occupation, which also means that for many it may be easier to sell and buy an apartment than finding a rental. 

In addition, the rental market is less regulated, which means that for many renters there would be a higher risk of being unable to afford their rents as they age. Owning the house you live in is seen as a protection against unaffordable rents and securing your own retirement. 

The private rental market (PRS) or Buy-to-let segment has taken off in Portugal rather recently and developed mostly in high-density urban areas, such as Lisbon. With the increasing professionalisation of the market this can be expected to continue to change. 

As a reader coming from a country with more orientation towards free market economy, the states support of mortgages may appear surprising. Buying houses is often seen as the preferred option for middle- or higher-income households whereas at the lower end renting is the obvious choice. Due to the above-mentioned factors, in Portugal, the regulation and subsidisation of mortgages to safeguard housing is just as relevant as the measures in the rental market. 

Read more on the housing package in the other two parts of this post: 

Governments housing package ‘mais habitação’ part 1 of 3: measures with most impact on Golden Visa, short-term rental and licensing

  1. Golden Visa will not be granted for real estate investment anymore
  2. Further restrictions on use of residential units as AirBnB and other short-term rental
  3. Simplification of the licensing process
  4. Increase residential space through easing conversion of commercial space
  5. The state will make some of the land it owns, and is not used, available for the development of affordable housing

Governments housing package ‘mais habitação’ part 2 of 3: measures with most impact on the rental market

  1. Rent for new contracts is limited to 2% above the last rent
  2. Change of taxation of rents
  3. State will act as contract party in rental agreement whilst providing the space to low-income individuals
  4. State will rent residential units in the free market to sublease them at lower rent to low-income households
  5. State will subsidise rents for households in need
  6. State reduces or exempts from various tax positions when a unit is let at affordable rent

Further reading on the topic in English

This post (parts 1 to 3) is vaguely based on various Portuguese and English articles by Idelista.pt. Idealista provides information about a wide range of real estate topics. 

Good reads on the topic are: 

Link: Idealista

Link: The Guardian

Link: CNN

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Governments housing package ‘mais habitação’ part 2 of 3: measures with most impact on the rental market

Governments housing package ‘mais habitação’ part 1 of 3: measures with most impact on Golden Visa, short-term rental and licensing

  • Golden Visa will not be granted for real estate investment anymore
  • Further restrictions on use of residential units as AirBnB and other short-term rental
  • Simplification of the licensing process
  • Increase residential space through easing conversion of commercial space
  • The state will make some of the land it owns, and is not used, available for the development of affordable housing

Governments housing package ‘mais habitação’ part 2 of 3: measures with most impact on the rental market

  • Rent for new contracts is limited to 2% above the last rent
  • Change of taxation of rents
  • State will act as contract party in rental agreement whilst providing the space to low-income individuals
  • State will rent residential units in the free market to sublease them at lower rent to low-income households
  • State will subsidise rents for households in need
  • State reduces or exempts from various tax positions when a unit is let at affordable rent

Governments housing package ‘mais habitação’ part 3 of 3: measures with most impact on mortgages and a note on key interest rates and mortgage subsidies

  • No capital gains tax when house sale proceedings are used to pay off mortgage
  • All banks have to offer fixed rates on home mortgages
  • State will subsidise interest rate payments for households in need
  • A note on key interest rates and mortgage subsidies
  • Further reading on the topic in English

Measure: Rent for new contracts is limited to 2% above the last rent

What does it entail?

Residential units which have been subject to a rental agreement within the past 10 years can not have a new rent more than 2% above the last one or the rent increase that could have been exercised during the last lease term. If there were rent update coefficients unapplied over up to three years, these can be added.

What does it mean for you as an investor?

Whereas property investments are usually a good protection against inflation, this is now a bit less so. In addition, there is an increased likelihood that this measure will be applied more often or even permanently in the future. 

Ironically, this measure bears the potential to affect the provision of housing negatively in the long-term. As it reduces the attraction of buy-to-let investments, it reduces the construction and refurbishment of apartments for this purpose and the overall availability of housing. 

Whereas investors will see their income from lettings increase slower due to this measure, the potential extension of it may increase negative long-term pressure on supply and, hence, support property values (stable or increased demand meeting stable or decreased supply).

Measure: Change of taxation of rents

What does it entail?

Hoping to encourage that owners put houses on the market, which have previously not been for let, the tax on rental income (IRS) was reduced to:

  • 25% for contracts wit a term <5 years
  • 15% for contracts with a term of 5 to 10 years
  • 10% for contracts with a term of 10 to 20 years
  • 5% for contracts with a term of >20 years

What does it mean for you as an investor?

It needs to be seen how much of an incentive this measure will be. 

On one hand the amount of vacant apartments is significant. 

On the other hand, these are not the vacancies that would be eliminated by a small percentage of tax savings.

An investor should go through their real estate portfolio and planned acquisitions to understand the impact of this measure. It will often turn out to be small relevance, but when seen in combination with the entire housing package may impact a decision here and there. 

Also, make sure you always have a good and up to date tax advisor.

Measure: State will act as contract party in rental agreement whilst providing the space to low-income individuals

What does it entail?

A core aim of the housing package is to ease access to housing for households with low or no income and those with a high rent to earnings ratio respectively. 

This measure will allow that the state can act as for the tenant in case the latter defaults and there is a reason that should be mitigated through public funds. If pursued this measure would apply after three months of defaulting and a respective filing of an eviction request. 

What does it mean for you as an investor?

This will only affect a landlord in case of a tenant in default. In the worst case the state does not exercise the right to enter the process, so a landlord would just proceed with the eviction as initiated. In the best case a tenant who has been unable to pay can stay, the eviction (and future costs) become unnecessary and your contract party is the most reliable you can possibly have (the state). 

Measure: State will rent residential units in the free market to sublease them at lower rent to low-income households

What does it entail?

In a similar way in which some municipalities (e.g. Lisbon) already rent apartments in the private market to provide them to families as affordable housing, the state set up a similar scheme. 

Rent will be directly paid from the state to the landlord, so there is no risk of tenant default and the tenants rent burden can be kept below or at 35% of the household income. As of now, the maximum period for this support is limited to 5 years duration.

Further, the measure includes the possibility for the state to purchase housing units for the same purpose and exempts those transactions from capital gains tax (IRS). This is applicable to sales to municipalities as well. 

What does it mean for you as an investor?

This measure may be relevant to you when: 

  • You are going to rent out an apartment which would suit the requirements of the scheme. You would receive a rental party much safer than any individual.
  • You are going to sell and the apartment would fit the requirements. With this measure the state or the municipality become possible buyers and you might be able to safe on capital gains tax (IRS). 

Measure: State will subsidise rents for households in need

What does it entail?

Applicable to households which spend more than 35% of their income in rent for contracts dating 21st December 2022 or before and, at the same time, are in a certain tax bracket, the state will monthly subsidy of up to 200 Euros.

What does it mean for you as an investor?

This will have a rather marginal effect on investors who have tenants who qualify for the above, because it simply eases of facilitates the tenants’ rent payments. 

Measure: State reduces or exempts from various tax positions when a unit is let at affordable rent

What does it entail?

Basically, this measure aims at:

  • Reducing the tax burden for landlords hoping that they lower their asking rents to the extent that they become affordable.
  • Reducing the tax burden for landlords hoping it makes it financially more viable to construct or refurbish for affordable housing

Both of the above will be done through reducing property transfer tax (IMT), income tax (IRS) and municipal property tax (IMI) and value added tax (VAT) for construction and refurbishment works. 

Further, this measure includes that:

  • Municipalities may fund refurbishments of units which are currently marketable and allocate them to affordable housing.
  • Public authorities can force the owner to lease a unit which is proven top be unlet and unoccupied. 

What does it mean for you as an investor?

This will depend on the costs and income structure of the residential units you own or plan to acquire. 

To benefit from the tax deductions (some of which are applied temporarily) the amount you save in total would have to be less than the difference between the market rent and the affordable rent. Research the respective parameters or consult your real estate consultant and tax advisor to find out whether that would be the case. 

However, forced refurbishment and renting will appear as a threat to many owners. If you own a vacant unit and are not running any efforts to bring it to the market in some way, it is time to act. Otherwise, you run risk that the state takes this decision from you. 

Read more on the housing package in the other two parts of this post: 

Governments housing package ‘mais habitação’ part 1 of 3: measures with most impact on Golden Visa, short-term rental and licensing

  • Golden Visa will not be granted for real estate investment anymore
  • Further restrictions on use of residential units as AirBnB and other short-term rental
  • Simplification of the licensing process
  • Increase residential space through easing conversion of commercial space
  • The state will make some of the land it owns, and is not used, available for the development of affordable housing

Governments housing package ‘mais habitação’ part 3 of 3: measures with most impact on mortgages and a note on key interest rates and mortgage subsidies

  • No capital gains tax when house sale proceedings are used to pay off mortgage
  • All banks have to offer fixed rates on home mortgages
  • State will subsidise interest rate payments for households in need
  • A note on key interest rates and mortgage subsidies
  • Further reading on the topic in English
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Governments housing package ‘mais habitação’ part 1 of 3: measures with most impact on Golden Visa, short-term rental and licensing

Various governments of European have begun to tackle the issue of housing availability and affordability in the past years and the Portuguese left is no exception. 

What started as a half-baked draft of measures (known as mais habitação) based on rather limited research to solve a problem has now become reality affecting owner-occupiers, investors and tenants alike. 

Implemented with only the best intentions there remains a risk that the measures only ease the symptoms whilst delaying real solutions and even potentially hindering higher availability of housing. 

Read in three parts what the 14 measures entail and how they affect the market and maybe your investment: 

Governments housing package ‘mais habitação’ part 1 of 3: measures with most impact on Golden Visa, short-term rental and licensing

  1. Golden Visa will not be granted for real estate investment anymore
  2. Further restrictions on use of residential units as AirBnB and other short-term rental
  3. Simplification of the licensing process
  4. Increase residential space through easing conversion of commercial space
  5. The state will make some of the land it owns, and is not used, available for the development of affordable housing

Governments housing package ‘mais habitação’ part 2 of 3: measures with most impact on the rental market

  1. Rent for new contracts is limited to 2% above the last rent
  2. Change of taxation of rents
  3. State will act as contract party in rental agreement whilst providing the space to low-income individuals
  4. State will rent residential units in the free market to sublease them at lower rent to low-income households
  5. State will subsidise rents for households in need
  6. State reduces or exempts from various tax positions when a unit is let at affordable rent

Governments housing package ‘mais habitação’ part 3 of 3: measures with most impact on mortgages and a note on key interest rates and mortgage subsidies

  1. No capital gains tax when house sale proceedings are used to pay off mortgage
  2. All banks have to offer fixed rates on home mortgages
  3. State will subsidise interest rate payments for households in need
  4. A note on key interest rates and mortgage subsidies
  5. Further reading on the topic in English

Measure: Golden Visa will not be granted for real estate investment anymore

What does it entail?

Granting a Visa to non-EU nationals based on the purchase of real estate had already been limited in the past regarding qualifying geographies and has now been entirely terminated.

Of all the measures of this housing package this has probably been the most challenged one as it removes some 600m of annual contribution to the economy. In addition, many market participants, including university researchers, argued that the impact would be rather small and Golden Visa purchases are often made in segments of the market (higher priced or developments tailored to Golden Visa) that would not have catered to domestic buyers anyway.

However, the Portuguese government followed a longstanding recommendation of the EU, since the day that the programme was important for the country’s economic recovery are over. 

What does it mean for you as an investor?

If you are a non-EU national and have not permanent visa yet, this means that you have one less option to obtain one. However, bear in mind that the Golden Visa programme still exists for investments in companies and that Portugal offers other Visa types, including for digital nomads. 

This measure hit many property developers by surprise and the implementation date of it was even set to just before the first announcement. This means that hundreds of apartments in developments tailored to foreign buyers (often more expensive and of higher standard) remained in the market and there are more to come. If your investment strategy entails high quality apartments, you might be able to find good supply at better prices than usual. Keep in mind that asking prices often do not change, but your negotiation margin does. If you are not used to negotiating, consider instructing a real estate expert to get you the best possible deal.

Measure: Further restrictions on use of residential units as AirBnB and other short-term rental

What does it entail?

Increase in licences short-term rentals has helped the real estate market to improve when it was badly performing increase the many years ago. 

Meanwhile, as the downsides of so-called over-tourism become more evident in many European cities including Lisbon, the government seeks to stabilise or reverse this development to release pressure from the housing market.

This measure entails that:

  • New licences will only be granted in rural locations and the countryside. 
  • Tax incentives (zero personal income tax until 2030) will be allowed to those owners who transform short-term rentals to long-term rentals by the end of 2024.
  • An annual special contribution will be collected from owners of short-term rentals.
  • Future reviews of existing licences will take place in 2030 and every 5 years after. This means it will be decided whether the cap on the number of licenses will be kept, increased or reduced.

What does it mean for you as an investor?

If you are already running local accommodation this measure of the housing package will have significant impact as per the above and, indirectly, you should have on your radar:

  • The risk that you may not be able to extend your licence beyond 2030.
  • The risk that taking a tax incentive in exchange for giving up the licence will heavily impact the income from a unit as well as its potential sales price. 
  • The risk that, in case local accommodation will be restricted upon review in the future, you may find yourself selling at the same time as many others or maybe during a market downturn.

Measure: Simplification of the licensing process

What does it entail?

The process of obtaining licenses for construction and larger refurbishments has been perceived as very slow and complicated. This issue is a major cause for concern when timing construction and budget. What is more, the problem appears to be more severe in Lisbon, where prices haven risen the fastest and supply is needed the most.

In the future ease is expected to come from:

  • Firstly, responsibility for the legal viability of a project is shifted from the municipality to the planner (often the architect), which is supposed to speed up the process.
  • Secondly, whereas municipalities would usually not have to fear damages for missing their deadlines to respond, this will now be penalised by applying a late interest payment. 

What does it mean for you as an investor?

It depends. 

On one hand investors who are active in the area of property development of refurbishments might benefit from more reliable schedules and budgets in the future. 

On the other hand this measure has the potential for the real estate market to react faster and better to demand. Whereas for the economy and tenants this is good, a less restricted supply side may lead to weakening sales and rental prices in some submarkets.

However, it needs to be seen how this will be applied in practise. Architects have raised a range of unclarities about the process and liability risks.

Measure: Increase residential space through easing conversion of commercial space

What does it entail?

It means that land and buildings which have a license for commercial use will not require a changed permit from the municipality.

What does it mean for you as an investor?

Generally, this is a good idea as it increases the potential space which can be made available to the residential market through apartment sales or leasing. 

It also provides property investors with more options to react to market demand and, hence, serve the strong demand for residential space.

In practice, it needs to be seen how this pans out, because:

  • Firstly, owners who have planned a construction or refurbishment of a commercial building have usually done so based on the returns offered in the commercial real estate market. Only where it is financially viable or advantageous they will consider to convert to residential use. 
  • Secondly, commercial and residential buildings have very different specifications. Changing the planning entirely may pose a problem to some owners and changed specifications may cause another loop in obtaining licensing regardless of the measure.

Impact on private and small professional investors will be limited. However, there will be more options for conversion of, especially retail or office space, to residential space. Since residential sales and rental prices in prime locations are often higher, it can make sense to look for well-priced commercial units that can be converted to realise the upside potential. 

Measure: The state will make some of the land it owns, and is not used, available for the development of affordable housing

What does it entail?

Public entities ranging from the municipality level up the state level own buildings and land plots in all kinds of locations throughout the country. Sometimes, these serve as space reserve for potential future needs (public schools, offices for administration, military facilities etc.). 

However, across the country these amount to approx. 100.000 units or buildings, so that it can be assumed that many have just not been dealt in an efficient manner yet and remained unused for no reason whatsoever. 

Some of these will now be allocated to affordable housing through public tenders. This also set an example for some of Portugal’s municipalities who started similar individual schemes. 

What does it mean for you as an investor?Since this will be applied to only a subsection of the market (affordable housing) and the numbers of new units are rather low (in the hundreds so far), the impact on your personal investment strategy is likely neglectable. 

Read more on the housing package in the other two parts of this post: 

Governments housing package ‘mais habitação’ part 2 of 3: measures with most impact on the rental market

  1. Rent for new contracts is limited to 2% above the last rent
  2. Change of taxation of rents
  3. State will act as contract party in rental agreement whilst providing the space to low-income individuals
  4. State will rent residential units in the free market to sublease them at lower rent to low-income households
  5. State will subsidise rents for households in need
  6. State reduces or exempts from various tax positions when a unit is let at affordable rent

Governments housing package ‘mais habitação’ part 3 of 3: measures with most impact on mortgages and a note on key interest rates and mortgage subsidies

  1. No capital gains tax when house sale proceedings are used to pay off mortgage
  2. All banks have to offer fixed rates on home mortgages
  3. State will subsidise interest rate payments for households in need
  4. A note on key interest rates and mortgage subsidies
  5. Further reading on the topic in English
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All about real estate agent fees in Portugal: the 6 main types of compensation in transactions, how much for whom and what to expect

For most people real estate purchase or sales are anything but a regular event, so some unclarity exists around the real estate agents’ compensation (often referred to as commission, brokers fee, brokerage fee etc.). The lack of transparency in many markets does not help either. 

So, let us shed some light on the topic.

Apart from the standard real estate brokers fee for a sale there are some other types a real estate agent might charge. Don’t worry, you rarely pay more than one of them. 

Most are incentive fees or success fees respectively, meaning they become payable upon completion of a transaction. 

The fees that should be on your radar should be the following: 

  • Sell-side fee
  • Buyside fee
  • Referral fee
  • Sourcing fee
  • Advisory fee (fixed or by the hour)
  • Kicker (also: incentive) fee

1. Sell-side fee

This fee, also called sales fee or sales commission, is what the seller of a house pays to the real estate agent when a sale is concluded. 

How much are real estate agent fees in Portugal?

The most common real estate brokers’ fee for the sale of apartments and houses in Portugal is 5% (plus VAT). 

However, some agencies specialised in the upper segment or luxury respectively, charge up to 6% (plus VAT). These are usually the ones with a particularly strong brand, such as Sotheby’s and Christies Porta da Frente. 

The sell-side fee can be freely negotiated, so you can also come across other percentages (down to 3%, but with very difficult assets 1-2% above 6%) or even fixed amounts. The latter makes sense for very small sales volumes, because a percentage might not reflect the effort the agent expects to make. 

When you consider negotiating bear in mind the following: 

  • You want the agent to be incentivized and while they might be compensated sufficiently for the time or effort they make, there is a chance that in their daily work they prioritize an instruction that pays better.
  • It is often the small agents with less resources, such as network and brand, who compromise the most on their sales commission. As a seller you should carefully consider if you want to enter this potential compromise. 
  • As you will see further below, the sales commission will often be shared with other brokers to find a buyer and close a deal. The less the lead agent is paid by the client the less they can share with other brokers, so there is less incentive to work towards a sale.

As mentioned, in Portugal this is paid by the seller. This differs from some other countries, however, it reflects that the sales agent is instructed by and acts in the interest of the seller. 

2. Buyside fee

The second most common fee is the buyside fee, which is often referred to as the buyer’s fee. 

This fee can vary a lot and can be anything between a fixed amount of a few thousand Euros or 50% of the respective sell-side fee (especially when agents’ share) up to a full percentage equal to the sales commission which would typically apply (rather rare). 

Unlike the name suggest, this could be paid for by either the sellers’ side (through a fee share with the sales agent) or the buyer themselves as a fee that is unrelated to the sale-side fee. 

In principle, it pays the agent or consultant who represents or supports the buyer of a property. There are two different situations in which a buyside fee would occur: 

  • Firstly, the buyer instructs a broker or consultant to find a property for him. In this case the buyers advisor often asks the sellers agent for a share of the sales commission in return for introducing a buyer. 
  • Secondly, the buyer instructs a broker or consultant to provide more comprehensive advice, such as preparing a valuation, an asset business plan, coordinate other experts etc. Since being compensated by the sell-side and acting for the buy-side constitute opposing interests, the compensation in this case should only come from the buyer. 

Often, the buyside fee is a success-based fee, which means it only becomes payable when a pursued transaction is successfully concluded. However, since often much work is done in preparation parts of the fees may be agreed to be payable nevertheless or a abortion fee may occur. 

Keep in mind that the amount or percentage of any buyside fee varies greatly. However, so do the services that you can expect in return. When working with a buyside advisor always clarify their experience, qualifications and which exact services they are going to provide to you. 

3. Referral Fee 

The referral fee, often called finders fee or tip fee, is just that. It someone’s compensation for bringing a buyer or, less frequent, a property or co-investor, into a transaction. 

This can apply to other brokers or tip givers, meaning that whoever establishes contact between two parties who conclude a transaction with each other could negotiate a referral fee. 

Depending on the constellation this fee is a fraction of the sales commission or, less frequent, the buyside fee. 

In practice you find amounts of anything between 10% and 50% of the reference fee. It will depend on what the referring party brings to the transaction, how challenging that is and how well they negotiated. 

This fee will ideally have been agreed and fixed in writing before the potential buyer or asset is established. 

4. Sourcing fee

A sourcing fee is a compensation paid in exchange for identifying a property in the market for a buyer. This can be on-market (real estate portals, speaking to brokers) or off-market (approaching private individuals, speaking to people in the desired neighbourhood etc). 

This can also, less often, refer to equity or debt souring, meaning bringing an equity investor or a creditor (the party that lends the money to someone else) to an investment. 

A sourcing fee is usually paid buy the buyer, but other constellations, especially like the above-mentioned buyside-fees, occur. 

If the process is rather simple or standardised (e.g. a debt broker requests conditions from several banks) this will usually not be more than a per mille of the reference amount. When the process is difficult and highly individual (e.g. finding an apartment with unusual characteristics off-market) this fee could be as high as a sales commission. 

5. Advisory fee (fixed or by the hour)

A good real estate expert will have plenty of knowledge, skills and contacts around his actual core tasks. Often additional services are provided to facilitate the transaction from which the expert is paid. However, when the work they perform is to far outside the agreed scope or there is no base instruction (e.g. sales instruction) the advisor may charge by the hour or day. 

These advisory fees are paid by the instructing party. 

Rates can vary between fixed amounts starting at 50-100 Euros for help opening a bank account to daily rates above 1,000 Euros as often seen in business consulting. 

Since the subject scope is usually fixed it advisable to compare alternative options, compare and, for simpler services, consider lower priced servicers.

6. Kicker fee

Most of the above success fees, so they become payable upon successful completion of a transaction. However, sometimes parts of the total fee will only be paid out when predefined conditions are met, e.g. a minimum sales price. Alternatively, this can be a fee on top of the base fee. 

A kicker fee can often be found in larger commercial transactions, but is rather uncommon in the residential market. However, it can be a pragmatic incentive to negotiate into the contract with your real estate advisor. 

In practice, these kicker fees can range from 0% to 70% of the base fee and are often a percentage of the amount achieved above the anticipated sales price.

Summary

There are various ways to compensate your real estate professional. As an investor, keep in mind that: 

  • There are at least six types of fees, each of which make sense in different situations.
  • Fees can be negotiated, but you will have to carefully consider where this is advisable.
  • In real estate, and especially in transactions, there is a lot of money at stake and compromising on quality to save fees may come at a much higher price later. 
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What are the differences between an agent (broker) and a property valuer (appraiser) and who does what and how?

Lots of confusion arises, especially amongst first-time real estate buyers, when it comes to dealing with brokers and valuers. 

However, it not that complicated. Here is what you need to know:

The terms

Depending on your language area there are various different terms describing one and the same role. 

A valuer may also be called appraiser or (chartered) surveyor. The latter implies a professional qualification which, depending on laws as well as professional standards of the respective market, individual or the valuation company may or may not be common. 

It is also common to refer to them as real estate valuer, real estate appraiser or real estate (chartered) surveyor. In some countries real estate may be called property and in some both uses are common. 

An agent might be called a broker (in the USA also often Realtor). Since agents obviously also exist in areas outside of real estate they may also be referred to as real estate agent or real estate broker. Saying property instead of real estate is also common in different geographies. 

There are residential agents (usually dealing with single houses, apartments or multi-family buildings and commercial agents (office, retail, logistics, hotels etc.).

An agent who solely focuses on finding real estate according to the search profile of the client might sometimes refer to themselves as house hunters or asset sourcers. 

Nice to know

In Portugal a real estate valuer is called avaliador imobiliário or avaliador de bens imobiliários and an agent agente imobiliário

In Germany real estate valuers are called Gutachter (usually regulated), Schaetzer, Bewerter or Immobilienbewerter and agents Makler or Immobilienmakler. 

In France a real estate valuer is called évaluateur or évaluateur immobilier and an agent is referred to as agent immobilier.

Legal and regulatory

To the displeasure of many market participants legal and regulatory frameworks for real estate professionals differ a lot between countries. 

For valuers either respective public authorities or at least banks have established rules and regulations which cover formal qualifications for valuers as well as key concepts and binding guidelines for the preparation of valuation calculations and the respective reporting. Naturally the tightest knit regulations are found around valuations of private residential for bank loans and fund valuation in order to limit risks to consumers and the financial system. 

In Portugal the main body regulating bank and fund valuations is CMVM and it not uncommon to apply IVSC (international) or TEGoVA (European) standards. The largest international organisation governing real estate professions and particularly valuers is the Royal Institution of Chartered Surveyors (RICS). RICS is the world’s major institution to set, assess and promote professional and ethical standards in the field of real estate.

For agents the legal framework is usually rather thin. This can be explained by their role which is usually focused on marketing, communications and coordinating different experts alongside the transaction process. In Portugal agents obtain their licence via application to IMPIC, IP (the Institute of Public Procurement, Real Estate and Construction). You will be able to tell if an agent is properly licenced by requesting their licence number (AMI number).

Nice to know

Often, private individuals place a lot of trust in the sales agent when being on the buyers side. However, it is good practice to keep in mind that an agent who is instructed and paid by the seller will act in their best interest. 

Therefore, it is often a good idea to instruct your own specialist who acts in your interest and limits your risk exposure. 

The tasks

The main goal of a valuation is to determine an objective value of an asset. This is often: 

  • To determine a mortgage value
  • For a potential seller to understand what they would sell for
  • For an investors balance sheet
  • For a buyer to assist in the bidding and understand risks and returns

In order to remain objective and indepent it is most common that valuers charge a fixed fee payable upon delivery of the valuation report rather than a commission that is dependent on a transaction. 

The main goals of an agent are:

  • To sell when they act for the seller
  • To facilitate the purchase when they act for the buyer
  • To browse the market and identify a building when they are instructed with asset sourcing
  • To lease a unit when acting for the owner
  • To find a unit, negotiate or re-negotiate lease terms when acting for the tenant

Depending on the respective goal an agent will pursue the highest or lowest possible price for their client. 

Nice to know

Whereas a good valuation is based on past transaction evidence (lease and sale terms of comparable properties) it might not reflect recent or temporary market movements. However, an agent would be able to translate those into their work immediately.

Depending on the circumstances, this will often mean that the value stated in a valuation is below the asking price of a property.

The reporting

Typically, a valuer concludes their work with production of a valuation report. Ideally, this report covers all important aspects that led to the result, such as location, the building itself, tenancy, costs, rental income etc. 

Depending on the use type and purpose of the valuation the applied methods and verifications may be:

  • Comparison method
  • Cost approach
  • Income approach and multiplier
  • Discounted cash flow and yield profile

An agent’s work may include a short version of a valuation or estimate, but usually is more focused on a marketing plan and their practical tasks around the transaction. 

Nice to know

Whereas valuers and agents will usually have knowledge around legal, technical and environmental issues, it is good to keep in mind that those areas a better covered by respective specialists, for instance lawyers or construction engineers. 

Both, valuers as well as agents will usually be able to refer to the respective specialists where appropriate.

How valuers and agents work together

Ideally, they don’t. This might sound like a contradiction in a process that becomes smoother, safer and faster with an increase of service integration. 

However, since the valuer works to produce independent and objective advise whereas the agent is determined to move the needle towards the (usually monetary) interest if their client, these two work best without interfering with each other. 

Moreover, in many countries laws as well as regulations exclude mixing valuations and transaction advise to avoid potential conflict of interest. Whereas some workarounds can be found and sometimes make sense in the area of commercial advisory, it is not recommended in more consumer-related markets like private residential. 

Nice to know

Valuers fees are usually a much smaller fraction of a property’s value than agents fees. Rather than the transaction price a valuer would usually quote based on time, effort and provided liability.

A valuers’ fee is typically a fixed amount whereas agents typically charge a success-based percentage of the sales price or rent they achieve for their client. 

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These are the seven main challenges of a digital nomad who wants to invest in real estate in Portugal and tips to overcome them

The Situation

Various locations in Portugal rank amongst the best worldwide for digital nomads whilst providing high quality of living and proving an excellent investment in the past.

Although digital nomads are increasingly integrated in everyday life and not only enjoy, but also contribute to the well-being of urban spaces and local economies they rarely find themselves on the owner’s side of real estate investments. Instead, they are usually renters who often lack ways of making long-term investments to accumulated wealth. 

Despite being well-educated and working, their lifestyle often prevents them from ‘getting on the housing ladder’, which puts them at a disadvantage compared to their more domestic counterparts or previous generations.

Aside from the general challenges that await any buyer or investor in real estate, there are some additional hurdles that are specific to digital nomads and that they should be aware of. Depending on the individual situation those can be easy or hard to overcome. 

Overall, there are five challenges specific to any digital nomad who intends to invest in real estate in Portugal or elsewhere. In addition, you should not lose sight of the two more general issues relevant to any foreigner buying in Portugal, the most important being visa and moving without buying.

Challenge 1: Geographics

Anything real estate is local, whereas the digital nomad, by definition, is anything but local. Ranging from reaching out to a broker in a different time zone, over visiting the potential investment, understanding the micro location, making contracts to refurbishing and meeting potential tenants.

Tips

  • Use your time in the respective location to visit a broad range of apartments. Over time your skills of relating between the real estate listing and what is to expect in reality will improve. An in-person visit will still be very important, but you will be able to screen and pre-select much better based on photos, 360º-walkthroughs and videos.  
  • Also, try to make some connections while you are on the ground. Meeting a consultant, a sales broker or an architect in person and discuss a potential investment will be a good basis for collaboration in times you are not around and need to rely on someone. 

Challenge 2: Language

Whereas in places like Portugal and especially within the real estate sector most people will assist you in fluent English, you may encounter problems nevertheless. The common step of double-checking what a local advisor (who may, at times, act in their own interest rather than in yours) told you becomes tricky.

Also, many steps in the investment process are subject to legal requirements. Your respective consultant, broker or architect will always be able to explain anything you need to know. However, it can become tricky when you want to verify primary sources, search for details online or use the original laws. 

Tips

  • Ask for bilingual contracts where possible. The Portuguese version will still be the legally binding, though.
  • Access original information and primary sources wherever possible. Ask for the precise Portuguese term and spelling of a topic that you are going dive in deeper. You can enter it in your search engine and then understand by using your browsers translation function or an online translator like DeepL.
  • Where information is crucial you might want to make use of translated, a translation service that lets you upload your text and choose between different qualities of translations of any language. 
  • When you have no way of verifying, consider getting a second opinion at least. This will reduce your risk of relying too much on a single person.

Challenge 3: Exchange Rates

When making any kind of investment you will always aim for a good relation of risks and returns. That means the more risk you take the more money you should earn. 

However, the equity (your own money) you invest may be in the currency in which your work gets paid, while the investment, any associated costs and your returns (rent, sales proceeds) maybe in another currency. With changing exchange rates these in- and outflows may vary significantly. The effect can be positive or negative and even increased in case of a mortgage.

Tips

  • See past volatilities of the two currencies in question. While past exchange rates cannot project future ones, they will give you an idea of the possible upside potential and downside risks.
  • Plan ahead: What are you going to do when an investment becomes too unattractive over time? Will you keep it and hope for an improved situation in the future or sell to cut your losses? Will you rather realise an unexpected gain by selling ahead of time or sit still and enjoy your growing wealth? Ideally, those decisions are made long-term and with respect to you respective phase of life. 
  • See if your mortgage bank offers protection against exchange rate changes. Some products tailored to foreign investors may protect you from unforeseen costs against small fees. 

Challenge 4: Digital Nomad Glasses 

When you do not spend all-year round in the same location, there is a higher possibility that you live disconnected from locals, their everyday lives and therewith from local dynamics. Places you go will vary less and you will be more likely to surround yourself with like-minded people.

While this might be exactly the setting you selected to invest in, keep in mind that real estate markets are largely impacted by a country’s politics and economy. A small change in those high-level areas (e.g. change of interest rates for mortgages) may easily overwrite a different development on the low-level (e.g. AirBnB rates in central locations) in the setting you are familiar with.

Tips

  • As a digital nomad you will already have developed some routine for connecting when you arrive in a location and disconnecting when you head somewhere else. Try to incorporate checking on local everyday life and the real estate market when arriving or even regularly. This can be through newsletters for foreigners (e.g. Essential Business, The Portugal News) or simply headline screening in Google News (remember to set location and interests). 
  • When you already have invested and you work with a local advisor, ask them to let you know when there are important news in politics or legislation that would affect you investment. This could be a property manager, a local friend or a good accountant.

Challenge 5: Reaction time 

Despite real estate being a long-term investment and an area where things usually do not change by the hour, you may be forced to react quicker than expected. A competitive bidder forces you to decide if you want to bid higher, the painter has a question, an urgent repair has to be made, a potential tenant wants to visit the apartment etc.

Tips

  • Have someone you trust on the ground. This can be an advisor you trust, a professional property manager or even a friend or an engaged neighbour who you trust and could compensate for their time. 
  • Plan ahead: When making your investment or before leaving the city at the latest work with an advisor to work out your personal investment strategy:
    • Are you going to be hands-on on all topics or are you going to save time and trouble chunking off as much as possible to local servicers?
    • What situations are likely to occur over the years when owing an apartment, e.g. tenant change, refurbishment, repairs etc?
    • Are you OK with coordinating different specialists on different topics or will you need a single-point of contact due to time-constraints?

Challenge 6: Visa

The end of the Golden Visa programme for real estate investment in 2023 limits the access ways for non-EU nationals to stay in Portugal permanently. Plans change and while you might not want to seek permanent residency for the time being you might want to be aware of your future options. 

Tips

  • Be clear and stay updated on visa regulations as, for instance, Portugal Digital Nomads Visa or the D7 Visa (‘Retirement Visa’).
  • Research your potential residence alternatives that suit your life and lifestyle, e.g. resident visa, short-term tourist visa, temporary stay visa or even a job-seeker visa. 

Challenge 7: Moving without buying

Surely the possibility of moving into your own apartment or kicking-off your first stay in a new country with a great investment seems intriguing. However, investing with limited knowledge of a location and only brief experience in living there stipulates an avoidable risk.

Tips

  • Consider moving without buying. See your time as a renter as a way to flexibly chose different neighbourhoods, find your preferred living situation and collect experience in the local real estate market. 
  • This will help you to make more informed decision on any future investment and you might even remain a happy and flexible tenant whilst buying and renting out to others in the future. 
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