The hidden costs of “cheap” large-scale Real Estate in Portugal: Hotels, Residentials, and Ruins

The hidden costs of “cheap” large-scale Real Estate in Portugal: Hotels, Residentials, and Ruins

Portugal’s real estate market is an attractive option for many, particularly when it comes to large-scale properties such as hotels, residential complexes, and plots with historic ruins. The idea of acquiring an old building in a prime location for what seems like a steal can be very enticing. But as someone deeply involved in this market, I can tell you, the hidden costs of real estate in Portugal, especially large-scale investments, are not always apparent at first glance.

Why so many buildings in great locations are abandoned

A common question I hear is, “Why are there so many abandoned buildings in prime locations in Portugal?” There are a few key reasons for this, and it all ties back to some of the hidden complexities that come with these types of investments.

One major issue is inheritance complications. Many properties, especially older ones, have been passed down through multiple generations without clear ownership. As a result, legal disputes over inheritance can drag on for years, making it difficult for the properties to be sold or redeveloped.

Another reason is the strict preservation laws in Portugal. Older buildings, particularly those with historical or cultural value, are often subject to rigorous preservation regulations. This means that investors are required to maintain certain aspects of the building’s original structure, which can lead to exorbitant renovation costs. In many cases, these requirements are simply too costly for the current owners or potential buyers to take on, so the buildings remain abandoned.

Finally, zoning and bureaucratic delays play a significant role. Developers often face years of waiting for permits to renovate or repurpose a property, especially in areas of Lisbon, Porto, and the Algarve where zoning laws are particularly tight. This red tape often discourages investors, causing buildings to sit vacant for extended periods.

The reality behind “bargain” large-scale properties

While you may come across a seemingly affordable hotel or residential complex, these properties often carry unforeseen financial risks. Renovating large buildings can be far more expensive than purchasing a new property. Older structures may not meet modern safety standards, and the need for upgrading electrical systems, plumbing, and other infrastructure can add hundreds of thousands of euros to the final cost.

A 2024 report from the Portuguese Real Estate Association revealed that bringing a derelict building in a prime location up to modern standards can cost €2,000-€3,000 per square meter, far more than new construction. So, that €5 million hotel you thought was a bargain may actually cost another €4 million to restore.

Legal complexities in developing large properties

For larger-scale developments like hotels and residential complexes, the hidden costs aren’t just financial; they’re also legal. Many of the buildings you see abandoned in prime locations have significant legal entanglements. Whether it’s unclear land titles, inheritance disputes, or complex zoning restrictions, developers can spend years trying to resolve these issues before they can even start on renovations.

The 2023 PwC survey found that 65% of real estate investors in Portugal underestimated the time and legal costs associated with acquiring the proper permits for large-scale developments. This can lead to massive delays, making an already expensive project even more costly.

Why large-scale cheap investments can end up costing more

While it’s tempting to invest in a “cheap” hotel or a residential plot, buyers should be prepared for extensive hidden costs. Beyond renovation expenses and legal hurdles, there are infrastructure costs. I’ve worked on several hotel and residential projects where the property’s initial condition required complete infrastructure overhauls, think plumbing, electricity, and even road access. These unforeseen infrastructure investments can easily inflate the project’s total cost by 25-30%.

For example, an investor looking to buy a rundown hotel for €3 million may end up facing an additional €2 million in costs just to bring the property up to code. And that’s before considering ongoing operational expenses once the hotel or residential complex is up and running.

My approach: Due diligence and full transparency

When working with clients who are looking at large-scale properties like hotels, I emphasize the importance of getting detailed inspections and professional assessments before moving forward. I make sure that every potential buyer understands the total cost of ownership, from acquisition to renovation and legal fees.

Transparency and due diligence are critical. My goal is to help clients avoid these pitfalls and make informed decisions about whether a project is worth pursuing as profit and success is most important.

Conclusion: The importance of a smart investment strategy

While the abandoned buildings in prime locations may seem like a missed opportunity, the reality is that the hidden costs of real estate in Portugal, especially for large-scale projects, are often too high for many investors. It takes careful planning, expert advice, and a long-term view to turn these “bargain” properties into profitable ventures.

If you’re considering investing in large-scale real estate in Portugal, whether it’s hotels, residential complexes, or ruins, make sure you go in with your eyes wide open. The opportunities are there, but only for those who are prepared to navigate the complexities and invest in the long-term sustainability of their projects.