Housing Profitability in Funchal Falls to 4.8% in the Third Quarter of 2025
The return on buying a home to rent in Funchal reached only 4.8% in the third quarter of 2025, according to new data from Idealista.pt. This figure places Funchal among the least profitable housing markets in Portugal, far below the national average of 6.9%.
This percentage shows how profitable the property is before taxes, fees, or other costs.
Lisbon remains the only city with a slightly lower profitability rate, at 4.6%, while mainland regions such as Castelo Branco (9%) and Bragança (8%) lead the ranking with much higher returns. The data underlines a clear divide between Portugal’s mainland interior and its island and capital markets.
Buying Real Estate to Rent in Portugal: Rental Returns and Profitability by City
Comparing Returns: Funchal Trails Behind National and Regional Averages
The Idealista report shows that Madeira continues to underperform compared with other parts of the country. While property prices on the island remain high, rental yields have not kept pace. This imbalance may suggest that investors find it harder to recover their costs through rent alone.
The gross profitability calculation — the ratio between the property’s sale price and the average rent requested by owners — helps investors estimate potential returns. In Funchal’s case, the low rental yield likely discourages new investors from entering the market, especially compared with more affordable mainland cities offering stronger returns.
Reasons Why A Low Profitability Might Not Mean That Housing Costs Will Stop Rising
Strong Demand Still Outweighs Supply
Even if rental returns fall, property prices can continue to rise when housing demand exceeds supply — for example, due to limited land, strict building rules, or ongoing migration to the area. In Funchal, available housing remains scarce, which can keep prices high despite weaker rent yields.
Investor Interest May Be Driven by Lifestyle, Not Just Profit
Many buyers in Madeira are foreign residents or retirees who purchase homes for personal use or long-term relocation rather than for rental income. Their decisions are often based on quality of life and climate — not short-term returns - which can sustain price growth even as profitability declines.
Broader Economic and Tourism Trends Support Value Growth
A strong tourism sector or general economic stability can keep property values rising. Even if rental profitability slows temporarily, long-term confidence in Madeira’s economy and its appeal as a tourist and retirement destination can continue to push property prices upward.
Source: Idealista.pt
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