Sales Market

Updated in March 2023

After plummeting during the great financial crisis (GFC) and the Portugal’s economic crisis that followed, the residential market started revamping in 2014, with the renovation of numerous buildings, initially in Lisbon and Porto city centres. The introduction of legal and fiscal changes, such as the reform of the Urban Lease Law and a new Urban Renovation Regime (establishing the reduction of the VAT rate from 23% to 6%), attracted the interest of developers and investors. Simultaneously the Non-Habitual Residents Tax Regime and the Residence Permit for Investment Activity (“Golden Visa”), targeting the European and non-European markets respectively, triggered the rise of a new demand from foreign purchasers. We estimate that the number of houses bought by foreign purchasers has more than double within a decade. The French, the British and the Brazilians comprise the major buyers.

The revamping of the residential development market started with small scale renovation projects, but new greenfield larger schemes are now being built all over the country. Notwithstanding, and despite double digit growth rates over the past four years in the number of new houses completed, construction levels are still low and there is a high unmet demand. An annual average of 76,250 houses were completed in the first decade of the century contrasting with only 13,000 during the second decade.

Official data from 2021 reveals a growth of 13% in the number of new houses completed and an even more significant increase in number of transactions (+20%), with more than 165,000 houses sold. Despite a slight slowdown on number of transactions in the last quarters of 2022, last year registered another record high – 167,900 houses sold, an increase of about 1,3% on number transactions.

However, we may see a slowdown in the pace of sales growth over the upcoming months. Not only has the Covid-19 pandemic slowed down licensing processes in several municipalities, impacting the availability of new homes for sale, but also the affordability of homes is more restricted due to higher interest rates and inflation, which is affecting household net incomes.

Houses sold in Portugal

Housing sale prices maintain their growth trajectory

More certain is the maintenance of the upsurge in sales prices. The lack of labour, increase in the cost of energy and construction materials, supply chain disruptions, as well as a persistent delay in urban licensing procedures, will postpone construction works even further and sustain the continued rise in housing sale prices in Portugal. The Housing Price Index shows successive increases since 2014 and in 2022 the rise was around 13%. We predict a similar dynamic for 2023. However, since the beginning of 2022 we have already observed a slight slowdown of prices for new houses. In 2023, prices are likely to keep on this track and we might see price adjustments due to a weakening of the sales market driven by high interest rates environment. Nevertheless, shortage of supply will prevent severe falls.

Indeed, development is expanding to a growing number of councils (aside from Lisbon and Porto) and, as new product enters the market, we will see prices rise in those locations. Overall, we foresee an increase in the average price in most councils, except for Lisbon, where the supply of prime product is more consolidated and a greater number of projects targeting the medium-high segment are beginning to emerge.

The amendment of the Golden Visa program, in force from the beginning of 2022, excludes housing purchases in high population density zones. This will impact particularly urban renewal projects in Lisbon and Porto city centres, causing a reduction in the sales volume and a stabilization, or even decline, in prices.

Conversely, the new Golden Visa regime will stimulate an increase in opportunities to develop projects in specific low population density zones like Comporta, Douro and Alqueva, among others, and the regeneration of historic centres in the country’s inland regions.

Build-to-Rent sector will emerge through affordable housing meeting an increasing awareness regarding Social Sustainability.

The Build-to-Rent market is still incipient in Portugal. A very profitable Build-to-Sell market and the lack of conditions, namely in terms of legislation and taxation have been lagging the sector to flourish. However, in 2021 efforts were made to launch the affordable housing market. Municipalities as Lisbon and Porto have implemented different programs and the first tenders were launched.

Nevertheless, the major contribution to stimulate interest in this market comes from the publication, at the end of 2021, of a decree-law establishing the reduction of the VAT rate from 23% to 6% in the construction or redevelopment of affordable housing. Thus, we expect the first projects to be launched.

At the same time, sustainability is a topic that spans all asset classes. In housing, for many years the focus has been on energy certification. We are now seeing in Portugal an interest in environmental certification, namely in rental assets like student residences. However, the pandemic brought to light various social concerns, giving greater emphasis to the “S” in ESG. Therefore, we should observe a greater interest from real estate funds with sustainability criteria to invest in affordable housing projects.

Beyond the build-to-sell market there is a range of living concepts still to emerge and grow. Build to rent, co-living and affordable housing are in very early stages and will soon join the growth path that is currently being witnessed in student and senior accommodation.

LISBON RESIDENTIAL MARKET

The Lisbon Metropolitan Area (LMA) includes the city of Lisbon and the neighbouring councils, comprising a total of 18 councils, divided between the north and the south bank of River Tagus.

Lisbon Metropolitan Area

Lisbon council concentrates more than one fifth of the houses of the metropolitan area (21%), followed by Sintra (12%), and Cascais, Loures and Almada (all with 7%). In the last decade (2011-2021), Seixal and Odivelas saw the highest construction volume (13% of total new homes), followed by Mafra and Lisbon (7%).

In recent years, Lisbon Metropolitan Area has observed an increase of new houses but still far from the levels of completed dwellings registered before the great financial crisis (GFC). 

Between 2013 and 2019, the number of houses sold in LMA more than doubled, disclosing a new dynamic after the great financial crisis period. There was a stabilisation in 2019, followed by a 16% decrease in 2020 mainly caused by Covid-19 pandemic. Nevertheless, this context has not changed the demand for houses, as sales returned to pre-pandemic levels in 2021, exceeding 51,000 units.

In 2022, 50,218 houses were sold in Lisbon MA, representing a 2% decrease when compared to the previous year. Sales prices have been escalating in all LMA councils. Lisbon, Cascais and Oeiras record the most expensive houses while Alcochete and Palmela were the councils that observed the highest price upsurge over the last three years.

Despite pandemic crisis, prices continued to grow over 2020 and 2022. Lisbon Metropolitan Area registered a 10% y-o-y increase of median sales price in 2021. In 2022, prices continue on the rise with the first, second and third quarters of the year disclosing a c. 16%.

Lisbon City Residential Zones

Lisbon City Residential Zones

Lisbon city has 24 parishes. Lapa and Restelo are traditionally the wealthiest neighbourhoods in Lisbon city, with an image of great prestige and “social status”. Chiado, Príncipe Real and Avenida da Liberdade gained importance with their landscape views and glamorous buildings, and are highly sought after by foreign buyers, becoming the most expensive areas in the city.

In the 2021 Census, Lisbon city recorded a total of 320 thousand homes. Similarly, to what was observed in the country in general, Lisbon city development activity was weak over the last decade which results in a home stock decrease of 2% between 2011 and 2021.

The number of new houses concluded per year in Lisbon decreased, from an historical maximum of 2,900 in 2003 to only around 47 units in 2016. The recovery of the residential construction sector initiated in 2014 however, was mainly focused on renovation and refurbishment projects - usually small scale - in the city centre. Nevertheless, new houses in Lisbon have been increasing since 2019 and registered a boost in 2021, when the number of completed dwellings in new construction more than doubled to 502 homes.

Effectively, development is being targeted at the acquisition of land plots outside of the historic city centre for greenfield projects and large size projects were already completed.

On the demand side, Lisbon recorded an increase in the sale of homes early in the century. The number of transactions reduced from a maximum of 15,700 in 2006 to less than 6,000 in 2012. An upsurge in the volume of sales was observed since the end of 2013. After a 5-year growth, the number of houses sold in Lisbon fell in 2018, 2019, and 2020, clearly mirroring the lack of supply. However, 2021 disclosed a strong recovery of the sales market in Lisbon with a 17% increase. In 2021, more than 11,000 houses were sold in the city, representing a 6% growth compared to the homologous period. According to Confidencial Imobiliário, more than 11,000 houses were sold in the city in 2022.

Effectively, there is a general scarcity of supply targeting the national demand due to unaffordable prices, house size and locations, driving demand to the outskirts of the city and nearby councils.

It is therefore not surprising that prices have more than doubled over the past six years. Despite the pandemic, median sales price in the city for new houses increased 11% in the last three years achieving 4,715€/sqm in 2021. In 2022, median sales prices for new houses continue on the rise with a 16%, 20% and 13% in the first, second and third quarters of the year, respectively. In the third quarter of 2022, the median sales price of new transactions in the past 12 months stood at € 5,220/sqm.

The most expensive zones in Lisbon are Avenida da Liberdade, Príncipe Real and Chiado with amazing river views, recording average prices exceeding €10,000/sqm for new houses in Misericórdia, and exceeding € 7,000/sqm in Avenidas Novas and Santo António parishes.

PORTO RESIDENTIAL MARKET

Porto Metropolitan Area (PMA) includes the city of Porto and the neighbouring councils, comprising a total of 17 councils, divided between the north and the south bank of Douro River.

Porto Metropolitan Area

Porto and Vila Nova de Gaia (“Gaia”) combined concentrate more than one third of the houses of the metropolitan area (17% each), followed by Matosinhos (10%) and Gondomar (9%).

New Houses in Porto Metropolitan Area

In recent years, Porto Metropolitan Area has observed an increase of new houses but still far from the levels of completed dwellings registered before the great financial crisis. In the last decade (2011-2021), Porto and Gaia also registered the highest construction volume – each representing 17% of total new homes - followed by Santa Maria da Feira (9%) and Matosinhos (8%).

Houses Sold in Porto Metropolitan Area

Between 2013 and 2019, the number of houses sold in PMA more than doubled, disclosing a new dynamic after the great financial crisis period. At this point, there was a stabilisation, followed by a 11% decrease in 2020 mainly caused by Covid-19. Nevertheless, this context has not changed the demand for houses to buy as figures from 2021 already exceed pre-pandemic levels, recording approximately 27,000 houses sold. This level of demand continued in 2022 with a total of 25.242 houses sold in Porto Metropolitan Area.

Sales prices have been escalating in all Porto MA councils. Porto and Matosinhos record the most expensive houses while Gondomar and Valongo were the councils that observed the highest price growths over the last three years. However, Espinho and Trofa account for the highest increases when bearing new houses median sales value for the same period.

Despite pandemic crisis, prices continued to grow over 2020 and 2021. Porto Metropolitan Area registered median sales price increases y-o-y, of 10% in 2021. The median sales price in Porto MA stood at €1,557/sqm in the third quarter of 2022, representing a 17% y-o-y increase. Median sales for new houses stood at €2,085/sqm.

Porto City Residencial Market

Porto city has 7 parishes. The parish of Aldoar, Foz and Nevogilde, comprises the wealthiest neighbourhoods in Porto along the sea front, while recent developments have been targeted at the Historic Centre and Riverfront Area.

Porto City Residential Zones

Porto recorded a strong level of construction growth in the beginning of the century. However, according to the last Census, there were 133 thousand homes in Porto in 2021 reflecting a decrease of 3% in the last decade. New completions plummeted between 2011 and 2016, although a new dynamic has been observed since 2018 with new supply in 2020 and 2021 almost triplicating the previous years values (approximately 900 unit in 2021, but still far from levels of new houses of the beginning of the century that surpassed 1,000 houses per year.

Similar to Lisbon, in 2017 we began to witness the sale of large plots for development in other councils of Metropolitan Area which combined with the lack of new developments until 2018 may explain this downward trend.

Regarding sales, there was a fall from 7,000 homes in 2000 to 3,000 in 2012. Increase initiated in 2013 with high growths recorded since 2015, achieving 6,800 units sold in 2018, but a decrease was observed in 2020. Notwithstanding, and, similarly to Lisbon, a significant percentage of these sales are not intended for permanent housing, reflecting a high imbalance between supply and demand.

Housing prices have seen a considerable increase (23%) between 2019 and 2021, achieving a median sales value of €2,467/sqm in the third quarter of 2022. Median sales price for new houses has also been registering an upward trend to €2,937/sqm in the third quarter of 2022.

Foz is the most expensive neighbourhood recording a median sales price of above €3,8950/sqm and €5,235/sqm for new houses. However, the highest value growth has been observed in the Campanhã parish.