Portugal’s house prices continue to rise, despite falling demand

Portugal’s house prices are still rising, despite falling demand and slowing economic growth. During the year to October 2023, the median price of dwellings in Portugal rose by 8.17% to €1,536 (US$1,655) 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 10% annually from 2017 to 2022.

However, when adjusted for inflation, nationwide dwelling prices have increased by a more modest 5.93% y-o-y in October 2023.

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 the Lisbon metropolitan area, property prices were up by 7% (4.8% in real terms) in October 2023 from a year earlier, to a median price of €2,033 (US$2,190) per sq. m.

By region:

  • In the North, the median property price rose by 8.3% y-o-y in October 2023 (6.1% in real terms), to €1,300 (US$1,401) per sq. m.
  • In the Center, property prices were up by 6.8% y-o-y in October 2023 (4.6% in real terms), to €1,071 (US$1,154) per sq. m.
  • In Alentejo, property prices rose strongly by 11.2% (8.9% in real terms) y-o-y to €1,091 (US$1,175) per sq. m.
  • In Algarve, property prices rose by 6.1% (3.9% in real terms) y-o-y to €2,109 (US$2,272) per sq. m.
  • In the Azores Islands, property prices increased 11.2% (8.9% in real terms) y-o-y to €1,208 (US$1,301) per sq. m.
  • In Madeira, the median property price rose by a huge 19.6% (17.2% in real terms) y-o-y to €1,712 (US$1,844) per sq. m. in November 2022.

By property type, apartment prices rose by 7.6% y-o-y to €1,701 (US$1,833) per sq. m. while house prices increased by 5.1% to €1,200 (US$1,293) per sq. m.

The continued rise in house prices is surprising given the sharp decline in property demand. In the first half of 2023, the total number of housing transactions in Portugal fell sharply by 21.8% to 68,117 units from a year earlier, while transaction value dropped 15.9% y-o-y €13.76 billion (US$14.83 billion) in H1 2023. All regions saw falling housing transactions over the same period.

The residential construction sector remains robust. In the first ten months of 2023, the number of licensed dwellings rose by 5.6% y-o-y to 27,130 units, based on INE figures. Likewise, dwelling completions were up by 8.2% y-o-y to 10,579 units in the first half of 2023.

The Portuguese economy was estimated to have grown by a robust 6.7% in 2022 from a year earlier, according to the country’s central bank, following a 5.5% expansion in 2021 and an 8.4% contraction in 2020. The robust growth was primarily buoyed by a stronger recovery in tourism and higher private consumption. However, the economy will slow sharply this year, with a projected real GDP growth rate of a modest 2.2%, based on figures released by the European Commission.

Demand is now falling rapidly

In the first half of 2023, the total number of housing transactions in Portugal fell sharply by 21.8% to 68,117 units from a year earlier, following y-o-y increases of 1.3% in 2022 and 20.5% in 2021, according to INE figures. Likewise, transaction value dropped 15.9% y-o-y €13.76 billion (US$14.83 billion) in H1 2023, in contrast to annual growth of 13.1% in 2022 and 31.1% in 2021.

In H1 2023:

  • Existing dwellings: the number of transactions declined by a huge 24.2% y-o-y to 54,322 units while transaction value fell by 19.5% to €9.97 billion (US$10.74 billion).
  • New dwellings: the number of transactions fell by 10.8% y-o-y to 13,795 units while transaction value decreased by 4.9% y-o-y to €3.79 billion (US$4.08 billion).

By region, AM Lisbon and Algarve had the biggest decline in the number of housing transactions, both registering a y-o-y fall of 27.4% in the first half of 2023, followed by Alentejo (-20.5%), Norte (-19.7%), and Centro (-14.6%).

In the autonomous regions of Madeira and the Azores Islands, housing transactions dropped by 20.3% and 20.5%, 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 Number of Housing Transactions graph

Construction activity continues to grow, albeit at a much slower pace

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.

Dwelling completions have followed a similar pattern, rising continuously from 2016 to 2021, registering an average growth of 19.2% annually. During 2022, completions continued to increase, albeit at a much slower pace of 3% y-o-y to 20,156 units.

Portugal Residential Construction graph

The residential construction sector continued to grow modestly this year.

  • Licensed dwellings: 27,130 units in the first ten months of 2023, up by 5.6% from a year earlier
  • Dwelling completions: 10,579 units in the first half of 2023, up by 8.2% from a year ago

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 figures from 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 70% above pre-recession levels

As of October 2023, Portugal’s nationwide house prices were about 70% 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 three years.

By region, AM Lisbon’s house prices are now about 83% above their previous peak. Also, house prices in the Algarve are now more than 79% up while they are nearly 73% up in the North. House prices in the Centre are up by more than 46%. In Alentejo, prices are now above their previous peak by almost 34%.

Likewise, house prices in the autonomous regions of the Azores Islands and Madeira are up by about 40% and 50%, 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 6.1% annually in 2021-22.

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).

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. Algarve, which is known for its Mediterranean beaches and golf resorts, had the most expensive housing in Portugal, with a median house price of €2,109 (US$2,272) per sq. m in October 2023, according to figures from INE. It is followed by Lisbon Metropolitan Area and Madeira, with median house prices of €2,033 (US$2,190) per sq. m. and €1,712 (US$1,844) 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.