Investments in the tourism sector
Maidera is the champion island for the number of tourism awards. Almost every year since 2013 it has received the Europe's Leading Island Destination award, and since 2015 - the World's Leading Island Destination.
Last year, more than 1.8 million tourists came here, making Madeira the fourth most visited region in Portugal and the leader in terms of travel duration. If in Lisbon you stay on average two nights, then in Madeira - for as many as five nights. The number of overnight stays on the island reached a record 9.8 million in 2022. The growth rate of Madera's tourism sector is second only to Lisbon. In addition, Madeira has the most cruise ships calling: 323 in 2022, compared to 489 visiting the whole of mainland Portugal. The top three countries from which tourists come here are: Britain, Germany and France. Last year tourism brought Madeira almost 529 million euros.
The average travel time to Madeira is 4.8 nights, the longest in Portugal. The national average is 2.7 nights (in Lisbon - 2.33).
From an investment perspective, it is interesting that the growth rate of the hotel sector is slowing down, while private housing is gaining popularity. For example, this September, about 3% more tourists stayed in hotels than last year, and a whopping 37% more in private accommodation. And this is a stable trend.
There is still demand in the market and the supply is trying not to remain: Madeira is the leader in the growth rate of the number of hotel beds in Portugal.
Perhaps you are now interested in investing in an apartment or house in Madeira to rent out to tourists. Where should you buy real estate, how much will it cost and what kind of profit can you expect?
Investments in real estate for short-term rentals
As of October 2023, the average price per square meter in Madeira is 2.782 euros. This is almost 21% more than in October last year. The most expensive place is Funchal. This is also the most popular place for tourists to spend the night, and the center of a zone of profitable locations for investing in short-term rentals. Experts from the property management company Holidu, which has more than 160 listings in Madeira, said that the most popular locations among tourists are located along the southern coast in both directions from the capital. When choosing an object, it is worth considering the area from Caniçu to Calheta. It is here that the climate is most stable and warm, which means there is minimal seasonality.
On the most popular Portuguese real estate marketplace Idealista, we looked at what you can buy in popular tourist rental locations in Funchal for 500 thousand, a million and two million euros, and using the AirDNA service, which evaluates the tourist rental market, we found out how much such real estate can be rented out for and what maintenance costs to consider.
For 500,000 euros, near the promenade in the center of Funchal, you can buy an apartment with two bedrooms, two full bathrooms and a balcony. AirDNA estimates the cost of a night in such a facility at 116 euros. The expected occupancy rate for the year is 83%. The annual rental income at this occupancy rate will be approximately 35,200 euros. Operating expenses will cost a little more than 20 thousand euros: this includes taxes, cleaning fees, utilities, internet, costs of maintaining the property (for example, minor repairs) and payment for the services of the company that will manage the property. Our calculations take into account the minimum management rate - 20% of income, however, as they say at Holidu, depending on the degree of involvement of the management company, this amount can reach up to 40%. Thus, the net profit per year will be about 15,100 euros. Capitalization rate - 3.02%.
For a million euros near Formosa Beach in the popular area of Sao Martinho, you can buy an apartment or house with four bedrooms and three bathrooms, which can accommodate 8 guests. You can get an average of 317 euros per night in such accommodation. The occupancy rate of such facilities, according to AirDNA, is 76%. Over the course of a year, such a house or apartment will bring 87,800 euros of income and almost 45 thousand euros of net profit. The capitalization rate in this case is 4.49%.
For 2 million euros in the picturesque surroundings of Funchal you can buy a house with four bedrooms, four bathrooms, a yard and a swimming pool. Such a house will be rented out for an average of 346 euros per night and you can expect an occupancy rate of 72%. With income of more than 90 thousand euros, net profit will be about 36,100 euros per year. Why is it less than a house worth 1 million euros? The reason is higher property taxes and the higher cost of maintaining the property due to the pool and other outdoor amenities. However, by investing in the interior at the initial stage, you can almost double the price per night. Well-thought-out properties with a stylish interior, a more advantageous view, a well-thought-out beautiful courtyard or terrace and their own "chips" are rented out on AirBnb for about 500 euros per night.
You can also invest the amount of two million euros in a house in the beach area outside of Funchal, where such properties are rented out for a larger amount due to the location. For example, a similar house of the same cost on the beach near the ocean in Punta do Sol, even with standard renovations, will cost for an average of 485 euros per night.
Whatever you choose - invest in renovations or buy a house in one of the popular locations along the south coast - you can expect approximately €56,600 in net profit per year.
Should we fear that Madeira's tourist property market will soon become oversaturated? Not yet. Official statistics show that, based on estimates for the first 10 months of the year, Madeira is already setting a new tourist record. This is also confirmed by Holidu data.
Short-term or long-term rental: what to choose?
When it comes to choosing between short-term and long-term rentals, Holidu experts say that so far the short-term one wins. There are two reasons. Firstly, properties on the island have a high occupancy rate - about 80% non-seasonally and about 90% during the season, and the average cost per night is constantly and steadily increasing. Secondly, despite the fact that more and more migrants are coming to the island (about 12 thousand foreigners now live here), the demand for real estate from them cannot yet be compared with tourism.
If you still want to rent out your property in Madeira for the long term or the island interests you as a place to live, then the most popular locations for buying a home are Funchal, Camara do Lobos, Calheta and Ribeira Brava. All of them are on the south coast. Residents of Madeira prefer to rent in the capital, especially in the already mentioned Sau Martinho and near Funchal in the town of Santa Cruz. Rental prices are also growing steadily and now average 13 euros per square meter. Almost 60% of the properties listed on Idealista are priced above 1500. For this amount you can rent a two-bedroom apartment with a balcony overlooking the ocean in an old building in Funchal. An apartment in a new complex with a large terrace will cost 3,000 euros. A house with a garden near Funchal can be rented for 5,000 per month.
