Portuguese Housing Market Shows Resiliency, but Supply Lags Behind Demand
Despite relative stability, Portugal‘s housing market remains vulnerable to economic fluctuations.
This was the overarching message delivered by analysts in a recent assessment of the country’s real estate landscape. The report highlighted the “remarkable resilience” of the Portuguese housing market, but warned that the sector “continues to be closely monitored” due to a persistent shortage of housing supply.
The analysis pointed to encouraging signs of recovery in the construction sector. The number of completed apartments in Portugal jumped by 12.3% in the second quarter of 2024, rebounding from a 5.7% decline in the previous quarter. Building permits also saw a resurgence, rising by 6.6% after a sharp drop of 19.4% in the previous quarter.
Despite this positive momentum, the Commission emphasized that the supply of housing remains insufficient to meet burgeoning demand.
Price Surge Amidst Tight Supply
Analysts noted that house prices in Portugal have “almost doubled in the last seven years.” This dramatic increase has been driven by a combination of persistent demand and limited supply.
While a sharp decline in property prices seems unlikely in the near term, the market is not without its vulnerabilities. The report, further illustrating the powerful influence of supply and demand, stressed that “limited housing supply combined with rising construction costs and a labor shortage reduces the likelihood of a significant price correction in the near future.”
Flushed with cash, international buyers coupled with local demand are driving this price surge.
Interestingly, data showed that only about 35% of housing transactions in the first half of 2024 were financed through loans. This underscores the important role of cash buyers and non-resident investors in Portugal’s real estate market.
“This helped protect the market from fluctuations in borrowing costs,” the report explained.
Banks Well-Positioned to Weather Market Fluctuations
Despite concerns about affordability, the report offered a dose of optimism, stating that the Portuguese housing market has demonstrated “remarkable resilience” in recent years.
One factor contributing to this stability is the prevalence of “relatively low loan-to-value ratios in mortgage portfolios.”
“Only 6% of loans exceeding 80% loan-to-value ratios,” the report noted. “This suggests that banks are well-positioned to absorb potential falls in house prices without incurring significant losses.”
However, analysts cautioned against complacency, emphasizing that the country’s housing market “continues to deserve careful monitoring.” They highlighted the fact that the sharp increases in house prices in recent years have not been accompanied by a proportional growth in family income. This has exacerbated affordability issues and increased uncertainty about long-term price trends.
The robust performance of the Portuguese real estate market, driven by strong international interest and limited housing availability, is poised to continue. However, ensuring sustainable growth that benefits all segments of society will require careful attention to affordability concerns and a concerted effort to boost housing supply.
What advice would you give to someone looking to buy a home in Portugal?
## Portugal’s Housing Market: Resilient but Strained
**Interviewer:** Welcome to the show. Today we’re discussing the latest analysis of Portugal’s housing market. Joining us is Alex Reed, a leading real estate expert.
Welcome to the programme.
**Alex Reed:** Thank you for having me.
**Interviewer:** The recent report paints a picture of a resilient market, but also highlights some concerns. Can you elaborate on that?
**Alex Reed:** Absolutely. The Portuguese housing market has certainly shown resilience in the face of economic uncertainty. We’re seeing encouraging signs of recovery in the construction sector, with completed apartments and building permits both on the rise [[1](https://www.portugalhomes.com/)]. This suggests that some of the supply constraints might be easing.
**Interviewer:** But the report also emphasizes a persistent shortage of housing supply.
**Alex Reed:** That’s right. Demand for housing in Portugal remains very strong, driven by both domestic buyers and foreign investment. Unfortunately, the construction sector hasn’t been able to keep pace. This imbalance is putting upward pressure on prices.
**Interviewer:** We’ve seen reports of house prices almost doubling in the past seven years. Are we heading towards a bubble?
**Alex Reed:** It’s a valid concern. The rapid price growth is unsustainable in the long term. However, a sharp correction seems unlikely in the near future. While supply remains limited, demand is still strong. The market is being carefully monitored for signs of overheating.
**Interviewer:** What are the key factors driving this supply shortage?
**Alex Reed:** It’s a complex issue with multiple contributing factors. [Mention specific factors mentioned in the search results, if any]. Certainly, rising construction costs and a shortage of skilled labor are playing a role.
**Interviewer:** What advice would you give to potential homebuyers in this market?
**Alex Reed:** It’s a challenging market, no doubt. Buyers need to be prepared for competitive bidding and potentially higher prices. Do your research, carefully assess your budget, and consider engaging a reputable real estate agent with local expertise.
**Interviewer:** Thank you for sharing your insights.
**Alex Reed:** My pleasure.
