Madonna House Hunting in Lisbon Adds Fuel to Hot Property Market

(Bloomberg) -- Rock star Madonna is house hunting in Lisbon, and that has some in Portugal excited. For others, the city’s allure spells unaffordable property prices.

The U.S. singer, the latest celebrity to consider a home in Lisbon, last month visited a hilltop palace that belonged to Antonio Champalimaud, who was Portugal’s richest man when he died in 2004, according to Gustavo Soares, the head of Sotheby’s International Realty in the country. Madonna also visited a few estates in the lush-green hills of Sintra, near Lisbon, he said.

“To have Madonna looking for properties in Lisbon isn’t just a cool thing for the market; it’s something that’s bound to make headlines and continue to drive real estate sales in Lisbon and elsewhere in Portugal,” said Soares, whose portfolio of properties include some of those seen by the singer.

For many locals who say they are increasingly priced out of a property market that goes out of its way to lure foreigners, that’s a cause for concern. Home prices in Lisbon rose 35 percent from 2012 to reach 2,318 euros ($2,599) per square meter in 2016, the highest since at least 2007, according to Confidencial Imobiliario, which collects data on the real estate sector. The average disposable income per household in Portugal rose 3.8 percent from 2012 to 17,967 euros in 2015, according to the National Statistics Institute.

Helping boost prices are the likes of Madonna, the latest of a handful of celebrities showing an interest in Lisbon. She recently shared pictures of the city in her Instagram account including one of children walking down a street wearing t-shirts of soccer club Benfica with a caption that reads “Where Life Begins.”

Others drawn to the city include Italian actress Monica Bellucci, who said in comments broadcast last year that she has a house in Lisbon. French fashion designer Christian Louboutin and former Manchester United Football Club player Eric Cantona are among other high-profile sometime-residents of the Portuguese capital. 

While some foreigners may be attracted by a city often compared to San Francisco because of its steep hills, trams and red suspension bridge, others may be seeking tax breaks granted to some expatriates who move to mainland Europe’s westernmost capital. There’s no special treatment for most locals.

“There is a severe affordability problem for Portuguese families when it comes to the housing market in Lisbon,” said Leonor Duarte, a founder of the “Living in Lisbon” group that collected more than 4,000 signatures for an online letter asking the government to help provide affordable housing for local families in the city. “We’ve seen this happen in other cities like Vancouver, where the real estate market became completely disconnected from the local economy.”

On Its Knees

Five years ago downtown Lisbon was on its knees. Old, empty buildings dotted the city as the country grappled with recession and high unemployment. Then, in 2012, the government began offering resident permits to non-Europeans who bought real estate worth more than 500,000 euros, drawing a wave of Chinese home buyers to the southern European country. Spain and Greece also offer similar programs. Portugal has raked in 2.8 billion euros ($3.1 billion) so far, mostly from Chinese investors.

Another program, the Non-Habitual Residents’ regime, allows expatriates in Portugal to pay as little as 20 percent on their income tax during a decade and exempts some pensioners from taxes altogether. The program has helped attract scores of French nationals, who last year overtook Britons as the biggest foreign property buyers in the country, according to the Portuguese Real Estate Professionals and Brokers Association.

“For many of these foreigners it’s the tax breaks that are having the biggest influence in their decision to move to Lisbon,” said Hugo Ferreira, executive director of the Portuguese Association of Real Estate Developers and Investors. “These incentives have helped turn Lisbon into one of Europe’s coolest cities.”

‘No Bubble’

Tourism in Lisbon has boomed as low-cost carriers such as EasyJet Plc helped bring travelers to the city’s hilltop castle, winding alleys and monuments that reflect Portugal’s seafaring history. Some blocks took on a new look as boutique hotels, Michelin-starred restaurants and luxury stores emerged.

“Today Lisbon is also a destination for the global elite like Madonna and Philippe Starck,” Secretary of State for Industry Joao Vasconcelos said in an interview on June 6, referring to the designer who’s spent time in Comporta and Cascais near the capital. “It’s the star city of Europe.”

Vasconcelos defended the government’s policies, noting that unlike cities like London or Paris, the price boom in Lisbon is limited to a few neighborhoods.

“There isn’t such a bubble or pre-bubble,” he said. “It’s not comparable.”

Still, in the 12 months ended March, home prices in Portugal rose 5.6 percent, according to the Knight Frank Global House Price Index. That’s more than the 4.1 percent increase in U.K. over the same period, the 2.9 percent rise in France and 2.2 percent growth in Spain.

“There may be some buying euphoria in very specific parts of the city that are
making it hard for Portuguese families to buy or rent a house in the city center,” said Ferreira of the real estate developers’ association. “But prices will continue to rise in the city as long as it’s driven by foreigners and they remain below prices in other markets such as Madrid, Barcelona, Paris or London.”

To contact the reporter on this story: Henrique Almeida in Lisbon at halmeida5@bloomberg.net.

To contact the editors responsible for this story: Jerrold Colten at jcolten@bloomberg.net, Joao Lima, Vidya Root