Sales Market

Updated in February 2024

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.

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 almost 160,000 houses sold. In 2023, 16,150 houses were licensed (-20% y-o-y) and 132,000 were sold (-17% y-o-y). As we have predicted before, we alre seeing a slowdown in the pace of sales. 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 House Price Index (HPI) shows successive increases since 2014, and in 2021 the increase was about 8%. We forecast a similar dynamic for 2023. However, since the beginning of 2022, we have already observed a slight slowdown in new house prices. Between January and March 2022, house prices recorded the least significant y-o-y increase since the second quarter of 2021.

In the third quarter of 2023, the HPI increased by 7,6% compared to the same period in 2022. However, there was a slowdown in growth, as in the  previous quarter the rise had been higher. For 2024, we predict that 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.

Amendment of the Golden Visa program will jeopardise urban renewal projects in Lisbon and Porto and stimulate growth in specific low population density zones.

The amendment of the Golden Visa program, in the beginning of 2022, excludes housing purchases in high population density zones and this brought an opportunity for the development of projects in low population density zones like Comporta, Douro and Alqueva, and for the regeneration of historic centers in the country's inland regions. Although, in July 2023, the Portuguese Parliament approved more changes to this program, deciding that no more golden visas will be conceded.

At the beginning of October 2023, Parliament approved "Mais Habitação" (Law No. 56/2023) - a program that introduces several legislative housing changes. One of these measures is the end of new golden visas in the most common ways, allowing new visas only under specific conditions. In addition, however, it will continue to be possible to renew existing visas.

In the renting sector, a limit has been set on the initial rent for new residential rental contracts and contracts prior to 1990 can’t be transferred to the New Urban Rental Regime (NRAU). There is also a new measure that defines the forced rental of certain properties (outside the interior of the country) that have been vacant for more than two years.

Another of the "Mais Habitação” measures has to do with Alojamento Local (short term rental) and the main one is the suspension of new licenses for apartments in autonomous fractions, as long as they are not located in the interior of the country or in the autonomous regions.

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, 50,228 houses were sold in Lisbon MA, representing a 2% decrease when compared to the previous year. In  2023, 38,370 houses were sold, 24% less than in 2022 (50,228 houses sold). This can be explained by the fact that the affordability of homes is now more restricted due to higher interest rates and inflation, which is affecting household net incomes.

Sales prices have been escalating in all LMA councils. Lisbon, Cascais and Oeiras record the most expensive houses, while Alcochete and Palmela have 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 continued on the rise and the same in 2023, reaching €2,935/sq m.

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 320,000 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, 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 three years, achieving 4,715€/sqm in 2021. In 2022, median sales prices for new houses raised 8%, with the median sales price of new transactions in the past 12 months standing at €4,022/sq m.

In the second quarter of 2023, Lisbon saw the median prices rise by 10.2% y-o-y to €4,080/sq m. The most expensive zones in Lisbon are Avenida da Liberdade, Príncipe Real and Chiado with amazing river views, with average prices reaching c.€6,000/sqm in the second quarter of 2023.

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 25,292 houses sold in Porto Metropolitan Area. In 2023, there were more than 21,000 houses sold in Porto MA.

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 €2,2022/sqm in 2022, representing a 20% y-o-y increase. 2023 registered a median sale price of €2,220/sq m.

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 €2,684/sqm in the second quarter of 2023.