LISBON • Rock star Madonna is house-hunting in Lisbon? While the news has got some people in Portugal excited, others worry that the city's allure spells unaffordable property prices.
The singer, the latest celebrity to consider a home in Lisbon, last month visited a hilltop palace that belonged to Mr Antonio Champalimaud, who was Portugal's richest man when he died in 2004, said Mr Gustavo Soares, head of Sotheby's International Realty in the country.
She also visited estates in the lush- green hills of Sintra near Lisbon.
"To have Madonna looking for properties in Lisbon isn't just a cool thing for the market. It's also something that's bound to make headlines and continue to drive real estate sales in Lisbon and elsewhere in Portugal," said Mr Soares.
For local residents who say they are increasingly priced out of a property market that goes out of its way to lure foreigners, that is cause for concern.
Home prices in Lisbon rose 35 per cent from 2012 to reach €2,318 (S$3,590) a square metre last year, the highest since at least 2007, according to Confidencial Imobiliario which collects real estate data.
The average disposable income of each household in Portugal rose 3.8 per cent from 2012 to €17,967 in 2015, according to the National Statistics Institute.
Helping hike prices are celebrities who show an interest in Lisbon.
Madonna recently shared pictures of the city on her Instagram account, including one of children walking down a street wearing T-shirts of football club Benfica with a caption that reads "Where Life Begins".
Others drawn to the city include Italian actress Monica Bellucci, who said last year that she has a house in Lisbon. French fashion designer Christian Louboutin and former Manchester United star Eric Cantona are among other high-profile sometime-residents of Lisbon.
While some foreigners may be attracted by a city often compared with San Francisco because of its steep hills, trams and red suspension bridge, others may be seeking tax breaks granted to some expatriates.
There is no special treatment for most locals.
But, five years ago, downtown Lisbon was on its knees. Old, empty buildings dotted the city as the country grappled with recession and high unemployment.
In 2012, the government began offering resident permits to non- Europeans who bought real estate worth more than €500,000.
Spain and Greece offer similar programmes. Portugal has raked in €2.8 billion so far, mostly from Chinese investors.
Another programme, the Non- Habitual Residents' regime, allows expatriates in Portugal to pay as little as 20 per cent on their income tax during a decade and exempts some pensioners from taxes.
The programme has helped attract scores of French nationals, who last year overtook Britons as the biggest foreign property buyers in the country, according to the Portuguese Real Estate Professionals and Brokers Association.
"For many of these foreigners, it's the tax breaks that are having the biggest influence in their decision to move to Lisbon," said Mr Hugo Ferreira, executive director of the Portuguese Association of Real Estate Developers and Investors.
"Today, Lisbon is also a destination for the global elite, such as Madonna and (designer) Philippe Starck," Secretary of State for Industry Joao Vasconcelos said. "It's the star city of Europe."
He defended the government's policies, noting that unlike cities such as London or Paris, the price boom in Lisbon is limited to a few neighbourhoods. Still, in the 12 months ending March, home prices in Portugal rose 5.6 per cent, according to the Knight Frank Global House Price Index. That is more than the 4.1 per cent in Britain over the same period, 2.9 per cent in France and 2.2 per cent in Spain.