Portugal Home Prices Surge on Foreign Demand and Shortage

Home prices in Portugal saw their most significant quarterly increase in almost two years during the third quarter, fueled by strong foreign demand and a chronic shortage of homes on the market, as reported by Bloomberg.

Portugal's National Statistics Institute revealed that home prices climbed 9.8% year-on-year in the third quarter, marking the sharpest rise since the final quarter of 2022. This follows a 7.8% year-over-year increase observed in the second quarter.

Lisbon-based Square Asset Management, managing over €2.5 billion in real estate assets, attributes the escalating prices to a persistent housing shortage exacerbated by lengthy delays in issuing new building permits, particularly in Lisbon.

"These permit delays, which can last years, are critical because they end up increasing the final price of a home," said Pedro Coelho, CEO of Square. "Lower interest rates and higher foreign demand for property is expected to keep prices up for the foreseeable future."

The confluence of a limited housing supply and robust foreign buyer interest, especially from affluent Americans seeking Portugal's desirable climate and relatively lower cost of living, is driving up prices. Favorable borrowing conditions are further stimulating local demand.

Foreign residents in Portugal have more than doubled since 2018, reaching a record one million and constituting roughly 10% of the total population.

Portugal's government has taken steps to address concerns over affordability, including the removal of real estate investments from its "golden visa" program and the reduction of tax incentives for new residents. However, the limited supply of social housing, accounting for just 2% of the total housing stock, remains a significant challenge.