Portugal, Europe’s hottest property market, is becoming increasingly unaffordable for locals

Ana Guerreiro points across the street at a handful of housing projects in Lisbon’s up-and-coming riverside neighbourhood of Marvila. It is where she moved in with her mother last year after soaring rents meant she could no longer afford to live alone.

“Prices have gone through the roof here,” said Guerreiro, 33, stepping outside the cafe where she waitresses for a break.

Portugal is western Europe’s most dynamic property market thanks to tax incentives for foreign buyers and a so-called golden visa programme, which offers residence permits in return for a minimum €500,000 (US$550,000) investment. The flip side for people like Guerreiro is that they have become collateral damage, with no prospect of prices cooling any time soon.

Foreign investors have pumped €4.3 billion into Portuguese real estate through the residency programme since it began in 2012. Prime Minister Antonio Costa, who is widely expected to win a second term in an election next month, has signalled the country needs the incentives to continue to bring in money. Foreign Minister Augusto Santos Silva even called the programmes a “sovereign right”.

Lisbon has become a magnet for tourists in Europe as many investors renovate properties and turn them into short-term rentals through sites like Airbnb. The short-term rentals have been blamed for increasing prices because they target visitors who can afford to pay more than locals.