Portugal Real Estate Watch

A regularly updated post about buying property in Portugal: current trends and an overview of the residential real estate market in Portugal.

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The real estate market in Portugal has been red hot for the last several years, especially in the capital, Lisbon, and in the Algarve.  In fact, Portugal is the Eurozone country where rent and home prices have gone up the most in the last 12 years, a trend that continued throughout 2023.  Portugal is increasingly the focus of Americans and other foreign nationals looking to decamp to southern Europe for warmer weather and a great quality of life, which is probably why you are reading this post. 
I have bought property in the United States and in Portugal – and done remodeling work in both countries as well – so I borrow from those experiences to shape my discussion here of what I think would be most relevant to the average foreign buyer looking to purchase a home or investment property in Portugal.  Using macro-level data on current trends in the Portuguese real estate market, I offer a bird’s-eye view for the individual investor interested in a deeper dive into what’s happening in Portugal. 
If you have a little time, check out the section links below for the full scoop.  If you just want the quick take, here it is:
Despite COVID-19 pandemic shutdowns and rising interest rates, the Portuguese real estate market has stayed relatively strong over the last four years, with prices continuing to rise, albeit at a slower rate.  However, actual sales have dipped and market sentiment among realtors remains somewhat pessimistic about the near term.  Yet given the lack of housing supply, it’s not clear that we’re seeing any fundamental shift in the direction of lower housing prices in Portugal, at least in the near term.  Housing has become a major political issue in Portugal and real estate watchers are paying close attention to moves by the government to increase housing supply and affordability.
Caveat emptor: while this post is updated regularly, the information it contains is subject to a constantly evolving real estate landscape — and my interpretation of it — so consider this merely A Very Short Introduction to Real Estate in Portugal, and not hard investment advice.
Here are the topics we’ll be covering:
On a year-by-year basis, home prices rose in Portugal in 2023, 2022, 2021 and even stayed positive in 2020, despite COVID-19 and global decreases in economic activity.  According to the Portuguese real estate research organization Confidencial Imobiliário in their January 2023 Portuguese Housing Market Survey, softening of the housing market, which had begun in late 2022, has stabilized.   Still, market sentiment among survey respondents – real estate agents and other professionals in the field – remains subdued, especially outside of the Algarve region and given the fact that interest rates continue to be high.  Uncertainty about government housing policy makes forecasting difficult, but the outlook is less negative than in previous quarters. (If you’re looking for your own real estate agent, check out my post Finding a Real Estate Agent in Portugal.)
However, this market pessimism hasn’t shown up in national data on home prices.  The Índice de Preços da Habitação (IPHab), or Housing Price Index, shows continued price increases through the fourth quarter of 2023 finishing in December.  As we can see in Graph 1 below, prices have climbed for the last four years, especially for existing homes compared to new ones.  However, the number of sales transactions decreased in late 2023 by 18.9% compared to a year prior.  This raises the question how long prices can continue to go up if sales flatten out.
Graph 1
Housing Price Index Q4 2023
Data Source: Statistics Portugal (Instituto Nacional de Estatística, INE); Base year 2015 = 100; Chart by An American in Portugal
[Technical Note: The IPHab is a relative scale that compares housing prices against a base year of 2015, which is set to 100.  If the price index is at 150 for a particular year, this means prices went up 50 points on the scale relative to the year 2015; if the price index is at 50, prices went down 50 points relative to 2015.  As you can see in Graph 1, the index has more than doubled in the eight years that have passed since the 2015 base year – from 100 in 2015 to well over 200 by the end of 2023, looking at total housing –  which underscores the dramatic increase in real estate prices over this period.]
One of the commonly cited reasons for the spike in real estate prices in the last decade-plus has been the influx of foreign investors, particularly those seeking Portuguese residency through the Golden Visa program (more on this below). According to the Bank of Portugal, the Portuguese central bank, in 2023 13.5% of new mortgages were given to borrowers with foreign citizenship, have of whom were from Brazil and the United States.  As a point of comparison, in 2021, only 8.2% of mortgages went to foreign nationals.  (Check out my post Getting a Mortgage in Portugal for details on the mortgage process here.)
If we look at median sales prices again, but by residency status, we see that non-residents are buying properties with a higher euro-per-square-meter value – that is, more expensive ones.  Table 1 shows us that in the fourth quarter of 2023, the price per square meter paid by non-residents in Continental Portugal (i.e., not the islands) was almost 50% higher than that paid by residents.
Table 1
Median Sales Prices in Portugal Over the Last 12 Months, Through Q4 2023, By Square Meters and Residency Status
Continental Portugal1,5812,365
Data Source: Statistics Portugal (Instituto Nacional de Estatística, INE). Table by An American in Portugal
Some real estate experts in Portugal have pushed back on the idea that foreign investment is responsible for the state of the real estate market overall, since non-residents comprise a small share of the market and have tended to buy larger or more luxury properties than the average Portuguese national.  (Others note that while it may be true that some of the early waves of foreign real estate investment came from heavy hitters with a lot of cash, future international investment may come from buyers at lower price points, which could aggravate the housing crisis.) However, the Francisco Manuel dos Santos Foundation (FFMS), a Portuguese think tank, published a 2022 study of the Portuguese real estate market and concluded that price jumps in high-value areas, especially in Lisbon, have led to contagion effects in other, previously less expensive areas.  One the one hand, that could mean deep-pocketed foreign investors scooping up properties in one hot neighborhood cause nearby areas to go up in price, too, even if foreign investors aren’t buying there yet.  On the other, housing prices in major urban areas have continued to rise even after Golden Visas were no longer available in large cities, suggesting that foreign buyers play a relatively small role in real estate price spikes.
The boom in tourism in Portugal over the last several years has also led to increases in the number of properties being converted into short-term holiday rentals, such as those posted on sites like Airbnb, which contributes to overall housing shortages, although to a lesser extent.  The FFMS report notes that in some market segments, housing prices are diverging significantly from bank appraisal values, which are highly regulated in Portugal and tend to be more conservative.  This could really matter in terms of how much you can borrow, if you’re in the market for a mortgage
Is this all an indicator of a real estate bubble? Well, some experts have argued that even if there is a correction in the market, it’s likely to be minor given the level of housing demand.  Whether further decreases in prices lie in store — and great investment deals to be had for buyers — will be tempered by another issue on which there is much less disagreement: the lack of housing supply in Portugal.

Housing Supply and Sales Prices

There is near-universal agreement that the supply of housing in Portugal has not kept up with the pace of demand, both foreign and domestic.  Various factors account for this, and real estate watchers don’t always agree on which are the most important, but there are two factors that tend to be frequently cited.
The first is that there is a large amount of vacant property in Portugal outside of the real estate market that remains unrented and unsold for long periods of time.  According to the 2021 Census, in Continental Portugal (i.e., excluding the Azores or Madeira), about 12% of homes are vacant, but almost 14% in Madeira alone are vacant.  It’s become a major political issue (more on this below), and now there’s even an interactive tool on the website of the Portuguese newspaper Público so that you can see the number of vacant properties by city or town.  The reasons for the vacancies are many – and storied – sometimes revolving around unresolved family disputes, other times families just waiting for property values in their area to pick up in order to sell and cash in.  It’s not an uncommon sight in Portugal to walk down a relatively busy street in a larger city, lined with bustling cafés and shops, past a decrepit 19th century building all boarded up.  Furthermore, a higher percentage of Portuguese families own two or more properties compared to the rest of Europe, and though many families rent or otherwise repurpose these properties, not all of them do.  The net effect is less property on the market, driving up prices on what’s left. 
For a more concrete sense of what the housing market looks like in terms of supply, Graph 2 below shows the number of dwellings (i.e., houses and apartments) across Portugal according to area in square meters, comparing the number of dwellings counted in the 2011 census compared to the 2021 census.  In both years, the largest number of dwellings falls in the 80-99 square meter range, or about 861-1066 square feet.  A 100 square meter apartment is the approximate size of a small two bedroom (by American standards) or a large one bedroom (by Portuguese standards). 
The most notable change from 2011 to 2021 is the decrease in the number of smaller dwellings and the increase in the number of larger dwellings, especially those over 150 square meters.   A 150 square meter home is roughly 1,615 square feet, which might be a large apartment in Manhattan or a small house in Texas.  Anything over 150 square meters is usually a larger three-bedroom or a four bedroom and beyond.  This means that if you’re in the market for a bigger apartment but you’re not in the high-end buyers’ segment where many of the larger apartments are targeted, you’ll probably face a tighter, and therefore more expensive, market than if you just want a smaller one- or two-bedroom, especially in Lisbon or Porto.
Graph 2
Number of Dwellings in Portugal, 2011 and 2021, By Square Meters
Data Source: Pordata, from 2021 Census. Graphic by An American in Portugal
The second factor impacting low housing supply has to do with construction prices and licensing difficulties (more on this below).  It’s not an easy or cheap affair to bring a vacant property to market, or to build new.  In Table 2 below, we see that in 2021 completed construction on new dwellings decreased by almost a third from 2011, and by almost half in the interior regions in the center of the country and the Alentejo.  Only Lisbon came close to maintaining the pace of new construction between 2011 and 2021 with just a 3% decrease.
Table 2
Completed New Construction of Dwellings in Portugal, 2011 and 2021, By Regional Division
Data Source: Statistics Portugal (Instituto Nacional de Estatística, INE). Change calculation and table by An American in Portugal
Of course, we can’t talk about housing supply without talking about where that supply is located (location, location, location, etc.) Table 3 below shows median home prices in Portugal per square meter over the last 12 months using data through the fourth quarter of 2023 (October-December) from Statistics Portugal, which tracks pricing for cities with over 100,000 habitants.  In Lisbon, you’re looking at a median price of US $675,054 for a 150 square meter home — about 1,615 square feet — but only US $ 254,826 in the northern city of Braga.  As in other markets, prices in urban centers tend to be higher than areas farther away in the greater metropolitan area.  We see that pricing in Vila Nova de Gaia (greater Porto) is substantially lower than in Porto, and pricing in Amadora (greater Lisbon) is substantially lower than in Lisbon proper.
Table 3
Median Sales Prices in Portugal Over the Last 12 Months, Through Q4 2023
MunicipalityMedian PriceMedian PriceMedian Price
_____________________€ / m2€ / 150 m2US$ / 150 m2
(1€ = US$1.08)
Braga1,573  235,950254,826
Vila Nova de Gaia*1,988298,200322,056
*Greater Porto**Greater Lisbon
Data Source: Statistics Portugal (Instituto Nacional de Estatística, INE). Table and square meters conversions by An American in Portugal
In sum, if you’re in the market for a larger apartment in a highly sought after city or neighborhood in Portugal, I wouldn’t bet on finding a deal so great you’ll be laughing all the way to the bank any time soon.

Construction, Permitting, and Remodeling

Given the low level of housing stock in Portugal, you might be tempted to think that buying a plot of land and building new would be a way around the supply issue.  Depending upon the locale, land may be cheap, making this option more attractive. But unless you have a long time horizon, and an ample budget, this route is not without its own complications, namely, the length of time it takes to get a building permit approved and challenges in finding a contractor to build it.
Imagine seeing a gorgeous plot of land at the top of a rolling hill a half mile away from the coast somewhere in the Algarve.  You could buy the land, build your dream house, and still see a sliver of ocean from your veranda.  Maybe there’s a pile of stones on the plot, the rubble of a former house, but you could just knock it down and start over. 
Record scratch.  You’ve got some work ahead of you at city hall.
First, you have to see how the land is zoned by the municipal government or cámara where the plot is located.  If it’s solo rural, or rural land, it can only be used for agricultural purposes with buildings only for agriculture use, not residential.  (In other words, the land’s not empty because you were the first one to have this vision.)  If it’s zoned as solo urbano, or urban land, you can build a residence there after submitting a permitting plan to the municipality.  However, if there are ruins of a house on the land – this right here is an indicator that it may be classified as solo urbano, but it could also just be an illegal dwelling on land not zoned for housing – then you have to see what the municipal zoning plan will allow in terms of new construction on this plot.  Quite often, you can only build something that is either the same size as the ruins, or just slightly bigger.  So, if the ruins are the size of a medieval peasant’s cottage, well, hopefully your dream house is, too. 
Second, if the land is zoned for residency and you want to move forward with a building project, you will have to submit the architectural plans to the cámara for a building permit.  Nothing special here, but permit approval times vary a lot by municipality, and can run between a couple of months and…wait for it…a couple of years. There isn’t any centralized way to see how long permitting takes across Portugal, and municipal websites may post current lead times that are merely decorative, not actually informative.  However, as a general rule of thumb, the more complicated the architectural project, and the larger the municipality, the longer the permitting process.  For example, the average permit application takes 250 days to approve, according to the cámara of Lisbon, and the city recently launched a project to fast-track less complicated plans so they can be approved in (only) 180 days.  So, if you want to go this route, make sure you’re working with a seasoned professional with boots on the ground who knows the local government system well.
Once you’re ready to build – or if you’re swooning just reading this and would prefer to skip the hassle and buy an existing home and just remodel it, which usually doesn’t require any special permitting – you need to find a contractor.  Unfortunately, this, too, is not that easy.  Finding a contractor in Portugal has gotten more difficult in the last year or so.  Demand for contractors is high and they sometimes can’t even quote all the requests that they receive.  (I once received a quote for remodeling work that I had requested six months prior.) There’s a labor shortage for construction workers, especially higher skilled tradesmen: salaries in Portugal are low so construction workers can, and often do, migrate to other EU countries to earn more. 
In my own experience here, and in talking to people in real estate or who have recently done home renovations, it’s often the case that contractors want to take on either less intensive jobs that involve standard or less complicated renovations, or, at the other end of the spectrum, construction of new homes.  Less intensive renovations require less highly skilled workers, so smaller companies can more easily handle this type of work.  New construction tends to be the domain of larger, well-capitalized construction companies that can pay more skilled workers. 
This is all to say nothing of construction material costs, which, in line with global trends, have gone up in Portugal as well.
For the average buyer, a used home that doesn’t require extensive renovations will be the fastest and least expensive avenue.  Of course, while this is particularly true in Portugal, it’s generally true everywhere.

Housing as a Political Issue

The lack of affordable housing in Portugal is a major political issue.  In September of 2023, Portuguese President Marcelo Rebelo de Sousa (known simply as “Marcelo” in Portugal) signed into law a recently passed legislative package known as Mais Habitacão (More Housing) to help combat long-simmering problems with housing costs in Portugal that are blamed for emptying Lisbon, Porto and other cities of middle-class and lower-income Portuguese citizens.  In addition to financial assistance for renters and homeowners and new tax and mortgage rules, the proposal also included a means to force homeowners to rent vacant properties, which was one of the most controversial parts of the package, and a rent freeze.  However, the recently elected government pledged to revoke some of those elements.
Two items in Mais Habitação directly target segments of the housing market catering to tourists and foreign residents.  These are:
  • Golden Visas: The bill officially ends the long-speculated cancellation of new visas granted through real estate purchases under the so-called Golden Visa program for would-be foreign residents in Portugal.  (Renewals of existing visas, as well as family unification visas, remain unaffected.)  Originally created in 2012, the Residence Permit for Investment program (Autorização de Residência para Atividade de Investimento or ARI, colloquially referred to as Vistos Gold in Portugal) allowed non-EU citizens to obtain Portuguese residency with the purchase of a home or a capital investment.  The visas have been a political target in recent years for contributing to high real estate prices without generating the promised economic returns for the country, and the program had already been tightened several times in terms of oversight and investment requirements. Golden Visa applications in process will still be considered. However, there is currently a backlog of 7,802 new applications, and approvals are slow: in June 2023, only 179 visas were granted.  On the upside, the approval rate is almost 100%.
  • Properties used for holiday rentals: Mais Habitação changes various regulations governing alojamento local (AL) or local accommodation, essentially apartments and houses rented out by the property owner for short-term holiday stays, typically to foreign tourists via online platforms such as Airbnb.  New licenses are suspended except for low population density areas.  However, new and renewal licenses will fall to municipalities to approve or deny, and they may institute their own changes.  (The cámara of Lisbon, City Hall, already reduced the number of AL licenses granted in several neighborhoods in the city center.)  The bill creates a new tax on AL income, and tax incentives for housing re-purposed away from AL.  It would also allow condominium associations to limit the number of condos being used for AL.  The Portuguese newspaper Público reports that some landlords and homeowners are preparing court challenges to the legality of the AL provisions.  If you were looking to buy an investment property and rent it out to Portuguese tourists, this option is much more limited.
We’ll be watching closely for new developments.  Check out the Investing page for more on business and investing in Portugal.
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