Lisbon is right back on track

The Portuguese capital has spent huge sums to transform its infrastructure. The housing market will benefit, predicts Graham Norwood

uying homes or investment properties in big cities is in vogue across Europe. Eastern capitals such as Prague and Budapest are alternatives to established markets. However, one historic western city remains cheap but ignored - Lisbon.

uying homes or investment properties in big cities is in vogue across Europe. Eastern capitals such as Prague and Budapest are alternatives to established markets. However, one historic western city remains cheap but ignored - Lisbon.

The Portuguese capital has only 1.3 million residents, but it is one of Europe's great cities. Cobbled streets, funiculars, monuments and architecture spanning the 18th to 21st centuries dominate the centre of the city, which is becoming better known to Britons thanks to budget air links from London and provincial UK airports.

Housing is cheap. No Portuguese price index exists, but most central flats are below €100,000 (£67,000), while houses come in at €250,000, according to estate agents in the city. The cost of living is well below that of neighbouring Spain.

But Lisbon still lacks appeal because it is relatively poor. In the past 20 years it has undertaken Europe's biggest housebuilding programme because of the appalling state of most homes; 44 per cent of its properties have been built since 1980, while the population has risen by just 4 per cent.

But many older homes in the city centre have not yet been modernised, and are very cheap. It is possible to get two-bedroom apartments in scruffy period buildings there for €30,000 or less. But they do not even represent the "buy and renovate" opportunities common in some countries, because some of the renovation needed, such as sewage, may be well beyond the scope of an individual owner.

Vast infrastructure improvements, mostly EU-funded, are under way. Sewage and water systems have been upgraded, as have roads and public transport linking the city with the rest of Portugal and Spain.

A spokesman for the Lisbon regional estate agency Maria Matos (00 351 261 414 349) says: "Much has been done, and in a few years this will be complete. Then there may be older homes on sale in the Alfama [the old quarter], Castelo and Mouraria, all in the centre. Owners will realise foreigners will be interested once infrastructure is the same as elsewhere in Europe."

Many who buy in the city therefore choose slightly off-central suburbs such as Rego, near the university and north of the centre, where apartments are typically 20 years old and cost €70,000 to €115,000 (Lammi estate agent, 00 351 808 201 100).

Others go further out to what locals call the Lisbon Coast, from Ericeira to the north to Sines in the south, and including Estremadura and Ribatejo. Further south is the Algarve, home to a glut of new-build mass-volume villas, many around golf courses and tourist resorts.

The Lisbon Coast boasts small towns such as Cintra, Cascais and Estoril, all with Moorish influences and all very close to Lisbon. These locations tend to offer much better value for money than the Algarve, and their properties are generally in better condition than those in the capital itself, says Quadrant Overseas Properties (01276 507 513), which specialises in the area.

Prices differ enormously along the capital's coast strip, rising nearer the Algarve. A large new development at Praia D'El Rey offers properties reflecting different local village architecture. Apartments start at €195,000 (details from the development sales office, 00 351 262 905 000). You can pay 10 times that for older, large one-off properties such as Casa Abarris, a five-bedroom and five-bathroom villa with extensive grounds (£1.3m through Jackson Stops & Staff, 020-7828 7387), further south.

Central Lisbon itself may not yet rival the potential of some European capitals, but expect to hear more of it. The trick is to get in quick.

Buying in Lisbon

The process is relatively slow and more expensive than in most parts of Europe. First, you must get a tax card and fiscal number and must nominate a Portuguese postal address (banks and estate agents offer this service). Second, few Portuguese finance houses lend to foreign buyers, so most Britons arrange a mortgage at home. Third, many apartments are community-run; buyers must purchase a share in the organisation and be responsible for communal areas. This makes renting out more fraught.

Legal fees can be 2 per cent of value; deed registration is another 1 per cent; a thorough survey costs €900; turning on the utilities can cost another 1 per cent; mortgage fees are often 2 per cent of the loan; stamp duty can be as high as 7.5 per cent; and transfer tax on second-hand homes can be as high as 10 per cent.