Portugal’s house price growth continues, despite weak demand

Portugal´s house prices continue to increase, despite falling demand and a rapidly slowing economy. During the year to April 2024, the median price of dwellings in Portugal rose by 7.04% to €1,596 (US$1,732) per square meter (sq. m), according to data released by the Instituto Nacional de Estatistica (INE). Dwelling prices have been continuously rising strongly in the past several years - increasing by about 9.2% annually from 2017 to 2023.

However, when adjusted for inflation, nationwide dwelling prices have increased by a more modest 4.74% y-o-y in April 2024.

Portugal´s house price annual change

Property prices in Portugal started to recover in 2014 and have been rising since. House prices rose by 4.9% in 2015, 5.7% in 2016, 7% in 2017, 9.7% in 2018, 11.7% in 2019, 6% in 2020, 11.2% in 2021, and 13.5% in 2022. In 2023, house prices continued to increase, albeit at a slower pace of 5.4%.

In Grande Lisboa, property prices were up by 4.9% (2.6% in real terms) in April 2024 from a year earlier, to a median price of €2,333 (US$2,532) per sq. m.

By region:

  • In the North, the median property price rose by 9.1% y-o-y in April 2024 (6.7% in real terms), to €1,371 (US$1,488) per sq. m.
  • In the Center, property prices were up strongly by 11% y-o-y in April 2024 (8.6% in real terms), to €1,084 (US$1,177) per sq. m.
  • Oeste e Vale do Tejo saw a house price growth of 12.4% (10% in real terms) y-o-y to €1,211 (US$1,314) per sq. m.
  • In Península de Setúbal, residential property prices rose by 6% (3.7% in real terms) y-o-y to €1,818 (US$1,973) per sq. m.
  • In Alentejo, property prices rose strongly by 13.4% (10.9% in real terms) y-o-y to €1,120 (US$1,216) per sq. m.
  • In Algarve, the average property price rose by a meager 1.3% y-o-y (and actually dropped by 0.9% in real terms) to €2,110 (US$2,290) per sq. m. in April 2024.
  • Azores Islands registered the biggest property price growth of 19.7% (17.1% in real terms) y-o-y to €1,269 (US$1,377) per sq. m.
  • In Madeira, the median property price also increased by a huge 16.8% (14.3% in real terms) y-o-y to €1,796 (US$1,949) per sq. m. in April 2024.

By property type, apartment prices rose by 6.1% y-o-y to €1,769 (US$1,920) per sq. m. in April 2024 while house prices increased by 9.8% to €1,248 (US$1,355) per sq. m.

The continued rise in house prices is surprising given the sharp decline in property demand. During 2023, the total number of housing transactions in Portugal fell sharply by 18.7% to 136,499 units from a year earlier, following y-o-y increases of 1.3% in 2022 and 20.5% in 2021, according to INE figures. All regions registered a decline in housing transactions.

The residential construction sector remains robust. During 2023, licensed dwellings increased further by 6% y-o-y to 32,053 units, according to INE figures. Likewise, dwelling completions also rose by 6.8% y-o-y to 21,534 units in 2023.

Portugal´s economic growth slowed sharply to 2.3% in 2023 from a year earlier, according to the country´s statistical agency, following strong expansions of 6.8% in 2022 and 5.7% in 2021, signaling a broad-based slowdown in activity across major sectors. Then in Q1 2024, the Portuguese economy grew by a meager 1.4% from a year earlier - its worst showing since Q1 2021. This was mainly due to a slowdown in private spending and investment.

The economy is expected to slow further this year, with a projected real GDP growth rate of just 1.7% this year, before improving slightly to a 1.9% growth in 2025, based on the European Commission forecast. On the other hand, the Banco de Portugal expects the economy to expand by 1.2% in 2024 and by 2.1% next year.

Demand is now falling rapidly

During 2023, the total number of housing transactions in Portugal fell sharply by 18.7% to 136,499 units from a year earlier, following y-o-y increases of 1.3% in 2022 and 20.5% in 2021, according to INE figures.

In 2023:

  • Existing dwellings: the number of transactions declined by a huge 21.4% y-o-y to 108,380 units, after registering a slight fall of 0.1% in 2022 and a strong growth of 22.1% in 2021.
  • New dwellings: the number of transactions fell by 6.1% y-o-y to 28,119 units, following robust increases of 8.5% in 2022 and 12.9% in 2021.

By region, Península de Setúbal had the biggest decline in the number of transactions, registering a y-o-y fall of 25.2% in 2023, followed by Algarve (-24.6%), and Grande Lisboa (-22.1%). Housing transactions had also fallen in Alentejo (-17.8%), Oeste e Vale do Tejo (-17.4%), Norte (-16%), and Centro (-11.8%).

In the autonomous regions of Madeira and the Azores Islands, housing transactions also dropped last year by 20.4% and 19%, respectively.

There are no restrictions on foreign property ownership in Portugal and transaction costs are generally low.

Under Portugal´s Golden Visa Program, the country grants a 5-year residency permit to non-EU citizens who invest in the country, including those who buy a minimum of €500,000 worth of property, allowing holders to work or study, and travel to Schengen countries. They could then apply for permanent residency after five years.

However the program went through significant changes recently, and in November 2023, the government announced that it no longer accepts the purchase of real estate or real estate-related funds as qualifying investment.

Portugal Housing Transactions graph

Construction activity continues to grow

After a long slump in construction, the number of licensed new constructions rose by 21.8% y-o-y in 2015 to 8,491 units, by 36.1% to 11,558 units in 2016, by 29.3% to 14,946 units in 2017, by 44.4% to 21,587 units in 2018 and by another 15.4% y-o-y to 24,905 units in 2019.

The growth in residential construction activity slowed in 2020 due to the adverse impact of the pandemic, with licenses rising by just 5.07% y-o-y to 26,168 units. Activity improved again in 2021, with the number of licensed new constructions increasing by 12% to 29,312 units. Then in 2022, licensed dwellings rose by a modest 3.2% y-o-y to 30,247 units - the first time that it crossed the 30K mark in 14 years.

During 2023, licensed dwellings increased further by 6% y-o-y to 32,053 units, according to INE figures.

Dwelling completions have followed a similar pattern, rising continuously from 2016 to 2021, registering an average growth of 19.2% annually. Completions continued to increase in recent years, albeit at a much slower pace - by 3% y-o-y to 20,156 units in 2022 and by 6.8% y-o-y to 21,534 units in 2023.

Portugal Residential Construction graph

Total dwelling stock was 6,002,874 units during the start of 2022, recording a marginal increase of 0.3% from a year earlier, based on the latest figures released by the INE. The northern region accounted for 31.7% of the total stock, followed by AM Lisbon (with a 25.2% share) and the central region (with a 24.7% share).

Portugal Housing Stock graph

House prices are already more than 77% above pre-recession levels

As of April 2024, Portugal´s nationwide house prices were about 77% above their previous nominal peak, seen in 2010. The housing market began to recover in Q4 2014, after 13 consecutive quarters of y-o-y house price declines. Despite the Covid-19 pandemic, house prices continued to rise in the past four years.

By region, Grande Lisboa´s house prices are now about 94% above their previous peak. Also, house prices in Península de Setúbal are now almost 91% up while they are more than 82% up in the North. In Algarve, house prices are already more than 79% above their previous peak.

In Oeste e Vale do Tejo and Centro, prices are up by 57% and 53%, respectively. House prices in Alentejo are now above their previous peak by 33%.

Likewise, house prices in the autonomous regions of Madeira and the Azores Islands are up by about 58% and 47%, respectively.

The house price boom that swept most of Europe and the developed world from the mid-1990s to 2006 completely bypassed Portugal, except in the Algarve. One of the reasons is the country´s sluggish economic growth. The country has grown by an average of just 0.3% per year from 2001 to 2016 before registering an annual average growth of 3% from 2017 to 2019. After experiencing a pandemic-induced contraction of 8.3% in 2020, the economy grew robustly by an average of 6.3% annually in 2021-22. Yet growth slowed sharply to 2.3% in 2023.

Surprisingly, the Portuguese housing market showed increased resilience in the past several years, with house price growth accelerating despite the Covid-19 pandemic.

  • 2003 - 2004: house prices rose by an average of 6.2% y-o-y (3.3% in real terms);
  • 2005 - 2007: prices rose by an average of 1.25% (-1.3% in real terms);
  • 2008: prices fell by an average of 4.7% (-7.1% in real terms);
  • 2009: prices fell by an average of 2.6% (-1.8% in real terms);
  • 2010 - 2012: house prices fell by an average of 3.1% (-5.5% in real terms);
  • 2013-2014: house prices dropped by an average of 1.5% (-1.5% in real terms), and;
  • 2015-2020: house prices rose by an annual average of almost 6% (5.3% in real terms).
  • 2021-2022: house price growth accelerated to reach an annual growth of 12.3% (5.9% in real terms).
  • 2023: house prices continued to increase, albeit at a much slower pace of 5.4% (3.9% in real terms).

Portugal Average Price of Dwellings graph

Portuguese property is relatively inexpensive

From the perspective of the foreign buyer, Portuguese property is astonishingly good value, despite the recent house price increases. Grande Lisboa, which includes the capital and prime city of Portugal, had the most expensive housing in the country, with a median house price of €2,312 (US$2,509) per sq. m in March 2024, according to figures from INE. It is followed by the Algarve, which is known for its Mediterranean beaches and golf resorts, with a median house price of €2,109 (US$2,289) per sq. m.

In contrast, Centro and Alentejo have the cheapest housing in the country, with median house prices of €1,074 (US$1,166) per sq. m and €1,106 (US$1,200) per sq. m, respectively.

Portugal´s house price to GDP per capita ratio is one of the lowest in Europe. Again, in terms of square meter prices, Portugal has some of the lowest prices for city-center properties in Europe.