It was in Castelo Branco where it paid off most to buy a house to rent at the beginning of 2024, says the idealist. But there are also more risks.
The rental market remains resilient in Portugal, sustained by high demand from families, especially in large urban centers. House rents will continue to get more expensive at the start of 2024 (and even accelerate), while also improving their profitability. Buying a house in Portugal to put on the rental market yielded 7.3% in gross terms in the first quarter of 2024, 0.7 percentage points (p.p) more than calculated for the same period in 2023 (6.6%), according to data from Idealista. However, the improvement in the profitability of buying a house to rent out, on its own, is not enough to encourage this real estate investment in Portugal and increase the supply of housing on the rental market, not least because of the risks.
Rental housing has the potential to grow in Portugal. This is because demand for rental housing has been growing, reflected in the increase in the number of new rental contracts in Portugal (up 4.5% between the end of 2023 and the same period in 2022, according to the National Statistics Institute). But the supply of rental housing has not kept pace with this trend and remains scarce, despite the fact that the gross profitability of buying a house to rent has been growing for three years, according to data from Idealista. This is because homeowners feel a lack of confidence in the government, legislative stability, greater protection and even more tax cuts, as reported by idealista/news.
At the start of 2024, the gross profitability of buying a house and then renting it out increased again. This business yielded 7.3% in the first quarter of 2024, up from 6.6% in the same period in 2023. The return on housing is now also higher than it was at the beginning of 2022 (5.6%), 2021 (6.1%) and 2020 (6.8%). But it is still 0.2 p.p lower than in the first quarter of 2019, when buying a house to rent yielded 7.5%, according to data from idealsita, the real estate marketplace in southern Europe.
Looking at the district capitals with available data, it’s clear to see that Castelo Branco is the most profitable place tobuy a house for investment, with a return of around 9.2% at the start of 2024. This is followed by the cities of Santarém (7.9%), Coimbra (7.2%), Leiria (6.6%), Braga (6.2%), Évora (6.1%), Setúbal (6.1%), Porto (5.8%) and Aveiro (5.4%). It should be noted that the risk of investment is also higher in these cities.
On the other hand, the lowest housing returns are obtained by owners of rented homes in Lisbon (4.6%), Faro (4.9%) and Funchal (5%). But here too the investment risks are lower, as there is less chance of the house not being rented out or of the property devaluing in the future, for example.
What’s the return on buying a house to rent in Portugal?
Idealista’s study also made it possible to analyze the profitability of other real estate products nationwide. Offices offered a return of 9.1%, stores 8.9% and garages 5.3% in the first quarter of 2024.
Methodology
To carry out this study, the idealist divided the sale price by the rental cost requested by owners in the different markets in the first quarter of 2024. The result obtained is the gross percentage of profitability that renting a house gives its owner. This data makes it possible to analyze the current state of the market and is a basic starting point for all investors looking to buy real estate assets for income.
