Why Investing in Algarve Holiday Rentals Could Be a Smart Move

Investing in short-term rentals in the Algarve region of Portugal presents a compelling opportunity for property investors. The area has witnessed significant growth in property values and rental yields. Algarve holiday rentals have long been popular but the rise in recent years has been somewhat exponential. 

High Demand For Holiday Rentals

The Algarve sets a new record of 5.2 million visitors in 2024, with peak seasons stretching beyond summer due to golf tourism, digital nomads and retirees looking for extended stays. Coastal towns like Lagos, Albufeira and Tavira see consistent demand, making short-term rentals a lucrative option.

Strong Rental Yields and Profitability

Short-term rentals in prime Algarve locations can generate higher income than long-term lets, especially during peak tourist months. On average, rental yields range from 5% to 14% making it a profitable market, depending on location and property type.

The demand for rental properties in the Algarve remains steady, contributing to favourable rental yields. According to recent data, the average property price in the Algarve rose by 10.1% year-on-year, reported in October 2024. Additionally, areas such as Coastal Alentejo and the Algarve are experiencing rising demand.

Favourable Real Estate Market & Growth Potential

Property prices in the Algarve are rising but still offer better value than other Mediterranean hotspots like the French Riviera or Marbella. Investors benefit from capital appreciation, with property values increasing steadily over the past decade.

Regulatory Considerations

It's important to note recent regulatory changes affecting short-term rentals. As of late 2024, the Portuguese government introduced new regulations impacting short-term rental properties, known as Alojamento Local (AL). 

The new law lowers the maximum capacity to 27 guests for all types of ALs, while maintaining the 2-person-per-room limit. Convertible/extra beds can be added, but they can't exceed 50% of the fixed beds. 

Additionally, property owners must register their short-term rental with the Municipal Council (Câmara Municipal) where the property is located. Once approved, the property receives a unique Alojamento Local registration number, which must be displayed on all listings (e.g., Airbnb, Booking.com).

Summary

The Algarve's property market offers promising prospects for short-term rental investments, driven by rising property values and strong rental demand. Prospective investors should stay informed about regulatory changes and conduct thorough due diligence to navigate the evolving market landscape effectively.

Thinking of investing or looking for a short-term rental in Lagos? Contact Resort Rentals Algarve for expert insights and property management services to maximise your rental income.

This article is not financial advice and you should conduct your own research when considering any investments.