In central Lisbon’s property market, sellers are kings.
The Portuguese capital’s real estate boom is entering a new phase as a shortage of prime property in the city center is prompting some buyers to bid above the asking price for the last available units.
“There’s a big gap between supply and demand,” said Luis Tilli, a real estate agent at Lisbon-based HomeLovers, which is selling a three-bedroom, 236 square meter (2,540 square feet) refurbished duplex in the historic quarter of Chiado for 2 million euros ($2.38 million). “It’s reached a point where some investors offer to pay above the asking price just so they can close a deal.”
Lisbon’s property market revival began after the previous government eased long-held rent controls and started offering residence permits in 2012 to non-European property buyers, mostly from China. Portugal’s tax-friendly regime for foreign residents and a tourism boom that led to the conversion of hundreds of buildings into short-term rental apartments and hotels have also helped fuel demand.
With the housing stock available along Lisbon’s river Tagus tumbling, investors are starting to look for properties or land for development elsewhere.
“There are a very limited number of buildings located in the center of Lisbon
to purchase,” said Jose Cardoso Botelho, head of Vanguard Properties, a real
estate firm controlled by French-Swiss investor Claude Berda that’s bought 10
buildings in Lisbon since it began investing in the city last year. “We’ve
started looking for building plots on the outskirts of the city now, but it
hasn’t been easy.”
Home prices in the city rose 35 percent from 2012 to 2016, when they reached the highest since at least 2007, according to Confidencial Imobiliario, which collects data on the real estate sector. In Lisbon’s historic center, property prices increased 26 percent in the first half of 2017 while the number of deals fell 34 percent from the same period a year earlier, a sign of a shortage of housing stock.
Average home prices in the central historic neighborhoods of Baixa, Chiado and Avenida da Liberdade were at 6,367 euros per square meter in the first quarter, according to a study by property appraiser and consulting company Prime Yield.
The country is expected to attract a record 3 billion euros in property investment this year, mostly from foreigners. That’s up from 1.3 billion euros in 2016, according to broker CBRE Group Inc.
Fueling the demand are the likes of rock star Madonna, the latest of a handful of celebrities to show an interest in a city that’s often compared to San Francisco because of its steep hills, trams and red suspension bridge. But central Lisbon’s housing stock is much smaller than in other European cities such as Madrid, London and Paris, and it’s quickly running out, according to Luis Lima, head of Portugal’s Real Estate Professionals and Brokers Association.
“It’s the first time that Lisbon has a shortage of homes to satisfy investor demand,” said Lima. “Home buyers need to realize it’s impossible for everyone to live in Avenida da Liberdade,” he said, referring to a boulevard in Lisbon lined with gardens, ornately tiled sidewalks and luxury shops that’s considered the local Champs-Elysees.
Even the “queen of pop” has showed some frustration in her quest to find a home in the southern European city.
In June, the 59-year-old Madonna visited a hilltop palace in Lisbon as part of her search for a home in the city, according to Sotheby’s International Realty. Four months later she shared a picture of herself riding a horse on a beach with a caption on her Instagram account that read: “Can’t find a house in Lisbon but damn… sure can find a horse!”
As housing stocks dwindle and prices rise, Lisbon residents are finding themselves being priced out of the real estate market in the city center. At the Hard Rock cafe store in Restauradores square, Pedro Vilela is busy selling t-shirts to tourists as the song “Thunderstruck” by rock band AC/DC plays in the background.
The 28-year-old says he enjoys his job but is increasingly struggling to pay the rent for a small room nearby that costs 280 euros a month, about half his salary.
“I’m thinking of moving away from the center and across the river where there are better places to live and much lower rents,” Vilela said. “It’s a little ridiculous, but what can I do?”
The Lisbon City Council plans to offer affordable housing to low- and middle-income residents in the city center, where a growing number of units have been snapped up by foreign investors. Under the plan, as many as 7,000 new homes with monthly rents between 250 euros and 450 euros will be made available.
“We must stop the exodus from the city center of residents who can’t afford the rising real estate and rental prices,” said Romao Lavadinho, president of the Association for Lisbon Tenants. “There are parents moving in with their children and children moving back into their parents’ home.”