drive the cost of construction higher and limit the number of new homes available.
The European Commission’s analysis of Portugal, part of the Autumn Package, acknowledges the real estate market’s resilience but advises continued monitoring due to ongoing supply shortages. The report indicates a 12.3% increase in completed accommodations in the second quarter of 2024, following a 5.7% decrease the previous quarter, and a 6.6% rise in construction permits after a prior 19.4% decline. However, residential construction hasn’t kept pace with demand.
Over the past seven years, house prices have nearly doubled, driven by strong demand and limited supply. While a significant price drop is considered unlikely, the report highlights that roughly 35% of housing transactions in the first half of 2024 were financed with credit, indicating substantial involvement from cash buyers and non-resident investors, which has buffered the market from interest rate changes.
The report also notes that limited housing supply, combined with rising construction costs and labor shortages, makes a substantial price correction in the near term less probable.
The European Commission observes that Portugal’s real estate market has been stable recently, partly due to low loan-to-value (LTV) ratios—only 6% of mortgages exceed 80% LTV—suggesting banks are well-prepared for potential price declines.
However, the report adds that rising housing prices have been partly fueled by non-resident owners and buyers and supply constraints. These increases haven’t been matched by equivalent family income growth, creating affordability challenges and potential instability in the future.
