Pros and Cons of Buying Property in Lagos, Algarve for Foreign Investors

Read about the pros and cons of buying property in Lagos, Algarve, as a foreign investor, from tax benefits and rental potential to market challenges and management considerations.

By LiveAlgarve on 27th February 2025 - 3-4 m. reading time 

As an increasingly popular destination for international buyers, Lagos presents numerous opportunities for those looking to invest in property, whether for personal use, as a holiday home, or as a rental investment. While there are many advantages to buying property in Lagos, there are also factors worth considering. Here, we explore both the pros and cons of buying property in this sought-after location.

Pros of Buying Property in Lagos, Algarve as a Foreign Investor

No Restrictions on Foreign Ownership

Portugal imposes no restrictions on property ownership for non-residents, allowing foreigners to purchase real estate with the same rights as residents.

Stable and Growing Property Market

Lagos has long been a popular location for both tourists and expats, contributing to a stable and growing property market. With property values in the Algarve rising steadily, buying property in Lagos can offer long-term capital appreciation potential. It’s an ideal location for those looking to make a secure investment in a high-demand area.

Favourable Tax Benefits for Non-Residents

Portugal offers the Non-Habitual Resident (NHR) tax regime. Though recently updated, it provides significant tax benefits to new residents, including foreign pensioners and professionals in high-value-added activities. This regime can result in reduced tax rates or even tax exemptions for a period of ten years.

Attractive Rental Yields Potential

With Lagos being a popular tourist destination, there’s a high demand for short-term rentals. Lagos attracts a high volume of tourists year-round, providing ample rental opportunities. According to Turismo de Portugal, through 2024, the country welcomed 31.6 million visitors and recorded 80.3 million overnight stays in tourist accommodations, marking a 5.2% increase in arrivals and a 4.0% rise in overnight stays compared to the previous year. Investors looking for rental income can capitalise on this demand for holiday homes, especially during peak seasons or through long-term leases to residents.

Scenic Location with Excellent Lifestyle

Lagos is a beautiful town with stunning beaches, a rich history and a relaxed Mediterranean lifestyle. Foreign purchasers seeking a holiday home or a second property will find Lagos an ideal spot to unwind, offering a balance of both local charm and modern amenities.

According to data from the Bank of Portugal (BDP), in the first half of 2024, foreign direct investment (FDI) in Portuguese real estate attracted €1.6 billion, representing 39% of all FDI totalling €4.1 billion.

For more information regarding the buying process for foreign investors and expats, read our previous blog, where we dive deeper into the legal requirements, financing options and key steps to purchasing property in Portugal.

Cons of Buying Property in Lagos, Algarve as a Foreign Investor

Property Purchase Costs

While Portugal is often seen as more affordable than other European countries, purchasing property in Lagos can still be expensive, especially in prime locations near the coast or in the town centre. Additional costs such as taxes, notary fees and registration, can also add to the overall expense. However, these costs are common in any international property purchase and are balanced by the potential for long-term gains.

Management Challenges for Remote Owners

For foreign investors, managing a property remotely can pose logistical challenges. Ensuring regular maintenance and handling tenants, owning property in Lagos from abroad requires a reliable local property management team. While this is an extra cost, it’s also an opportunity to ensure that your property is well looked after, especially if you plan to rent it out. Many buyers work with trusted agencies to streamline the process.

Seasonal Tourism and Rental Demand

Lagos sees a significant increase in visitors during the summer months, but during the off-season (fall and winter), tourism and rental demand significantly drop. This can lead to reduced rental yields if you're relying on income from short-term rentals. For those investing in property, it’s important to plan around these seasonal variations.

Currency Exchange Risks

Foreign buyers must consider fluctuations in currency exchange rates. Depending on where you are purchasing from, the exchange rate may impact the final purchase price, especially if there’s a significant dip in your local currency.

Legal and Bureaucratic Hurdles

Although Portugal has simplified the process for foreign buyers in recent years, there may still be bureaucratic hurdles to navigate. Ensuring that all legal documentation is in order, especially for foreign investors, can require assistance from a local lawyer or real estate agent. While this adds to the process, it ensures that the transaction is conducted smoothly and legally.

Conclusion

Purchasing property in Lagos, Portugal, presents numerous benefits for foreign investors, including a favourable tax environment and strong rental potential. However, it's crucial to consider the associated costs, legal processes and market dynamics. Conducting thorough research and consulting with local real estate professionals can help ensure a successful investment aligned with your financial goals.

While there are challenges, such as the logistics of managing property remotely and dealing with seasonal fluctuations in rental demand, Lagos remains an ideal location for your overseas property investment in Portugal.