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Lisbon's property market in 2025 shows clear signs of being overpriced relative to local incomes and economic fundamentals. Property prices have surged dramatically over the past five years, significantly outpacing both local wage growth and inflation, making the Portuguese capital one of the least affordable in Europe for residents.
Foreign investor demand continues to drive prices upward despite regulatory restrictions, while rental yields remain attractive compared to borrowing costs. The combination of limited housing supply, strong international interest, and inadequate wage growth has created a market where average residents need over 21 years of income to afford a typical apartment.
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Lisbon property prices have increased 60-100% since 2020 while wages grew minimally, creating severe affordability issues for local residents.
Central Lisbon now costs €5,000-€8,000 per square meter, making it more expensive than Madrid and approaching Berlin levels despite significantly lower local incomes.
| Metric | Lisbon 2025 | Comparison/Context |
|---|---|---|
| Price per m² (Central) | €5,000-€8,000 | Higher than Madrid, approaching Berlin |
| 5-Year Price Growth | 60-100% | Far exceeds wage growth (22%) and inflation |
| Price-to-Income Ratio | 21.1 | Among highest in Europe |
| Foreign Buyer Share | 40-70% | Dominant in luxury segments |
| Rental Yield | 5-7.8% | Above mortgage rates (2.5-3.5%) |
| Housing Cost % of Income | 40-55% | EU average: 30-33% |
| Forecast Growth 2025-27 | 2-10% annually | Expected to moderate but remain positive |
How much have average property prices in Lisbon increased over the past five years compared to wages and inflation?
Lisbon property prices have nearly doubled since 2020, representing one of the most dramatic real estate price surges in Europe.
Property prices jumped from approximately €3,000-€3,500 per square meter in 2020 to a median of €5,642 per square meter in June 2025. This represents a five-year increase of 60-100% depending on location and property type, with prime central areas experiencing the highest growth rates.
In stark contrast, average wage growth in Lisbon has been minimal during the same period. The net average salary increased from about €1,300 per month in 2020 to around €1,595 per month in 2025, representing only a 22% increase over five years. This means property prices have outpaced wage growth by a factor of three to four.
Portugal's inflation averaged between 4-7% annually since 2021, compounding to approximately 25-35% over the five-year period. Even when accounting for inflation, property price growth has significantly exceeded the general price level increases in the economy.
This dramatic divergence between property prices and local purchasing power has created an affordability crisis that positions Lisbon among Europe's most overpriced capitals relative to local incomes.
What is the current price per square meter in central Lisbon versus suburban areas, and how does that compare to other European capitals?
| Location | Price per m² (€) | Notes |
|---|---|---|
| Central Lisbon (Baixa, Chiado, Príncipe Real) | €5,000-€8,000 | Standard units; luxury: €10,000-€12,666 |
| Modern Central (Saldanha, Avenidas Novas) | €4,500-€7,500 | Business districts |
| Lisbon Suburbs (Amadora, Odivelas, Loures) | €3,000-€4,500 | Outer districts |
| Madrid (Central) | €4,000-€5,000 | 25% less than Lisbon |
| Berlin (Central) | €6,000-€7,500 | Similar to Lisbon prime areas |
| Paris (Central) | €10,000-€13,000 | Nearly double Lisbon |
| Budapest/Bucharest | €1,400-€1,700 | Less than half of Lisbon suburbs |
How affordable are Lisbon properties right now when measured by the price-to-income ratio for local residents?
Lisbon's affordability for local residents has reached crisis levels, with a price-to-income ratio of 21.1 as of September 2025.
This ratio means that the median resident would need over 21 years of their entire net average income to afford a typical 90 square meter apartment in Lisbon. This figure places Lisbon among the least affordable capitals in Europe, far exceeding traditional affordability thresholds of 5-8 years that economists consider reasonable.
For context, this ratio is higher than many traditionally expensive cities and signals severe housing unaffordability. The median household in Lisbon now spends 40-55% of their net income on housing costs, whether rent or mortgage payments, compared to the EU average of 30-33%.
The situation is particularly challenging for young professionals and first-time buyers, who face the additional burden of saving for down payments while housing costs consume such a large portion of current income. Many local residents have been effectively priced out of homeownership in their own city.
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What is the average rental yield in Lisbon in 2025, and how does it compare with mortgage interest rates?
Lisbon rental yields in 2025 range from 4.9% to 7.8% depending on neighborhood and property type, with a citywide average of approximately 5-6%.
Current mortgage interest rates in Portugal range from 2.5% to 3.5% for both fixed and variable rate loans, with projections suggesting rates may stabilize around 2-3% by late 2025. This creates a positive spread of 2-4 percentage points between gross rental yields and borrowing costs.
However, investors must account for significant additional costs that reduce net yields substantially. Property taxes, maintenance, management fees, vacancy periods, and income taxes can easily consume 2-3 percentage points of gross yield, potentially bringing net returns closer to mortgage rates.
The yield differential remains attractive enough to sustain investor interest, particularly among foreign buyers who can access favorable financing terms. This positive carry has been a key driver supporting continued price appreciation despite affordability concerns.
For buy-to-let investors, the mathematics still work favorably, especially in areas with strong rental demand from international professionals and students, though margins are tightening as prices continue to rise faster than rents.
How many months of supply are currently on the Lisbon property market, and is that above or below historical averages?
The Lisbon property market currently shows approximately 5 months of supply, indicating a tight market with limited inventory available to buyers.
Properties in Lisbon typically take an average of 5 months to sell from listing to completion, though this varies significantly by price range and location. Prime central properties often sell much faster, sometimes within 2-3 months, while suburban or overpriced properties may take 6-8 months.
This supply level represents a seller's market, where demand consistently outpaces available inventory. New listings are quickly absorbed, particularly in desirable neighborhoods and for properties priced competitively within their market segment.
Interestingly, the gap between asking prices and transaction prices has widened to an average discount of 8.1% in 2025, suggesting some buyer resistance to the highest asking prices, though sales volumes remain strong.
The tight supply situation reflects both strong demand from foreign buyers and limited new construction, creating upward pressure on prices that shows little sign of abating in the near term.
How many new housing units are being built in Lisbon annually, and is that keeping up with demand?
New housing construction in Lisbon is significantly lagging behind demand, with approximately 1,000-2,000 new units completed annually in the city proper.
Several major development projects are underway across the broader Lisbon metropolitan area, with roughly 25,000 new units planned over the next several years. However, these planned developments are spread across multiple years and municipalities, meaning annual delivery remains well below demand levels.
The construction industry faces multiple constraints including lengthy permitting processes, labor shortages, high material costs, and limited developable land within the city center. These factors combine to keep new supply additions minimal relative to buyer demand.
Foreign buyer demand alone, representing 40-70% of transactions in various segments, far exceeds the annual new supply of housing units. When combined with local demand and population growth, the supply-demand imbalance becomes even more pronounced.
This structural supply shortage is a fundamental driver of price appreciation and suggests continued upward pressure on values until either demand moderates significantly or construction volumes increase dramatically, neither of which appears likely in the near term.
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What share of Lisbon property buyers are foreign investors versus local residents in 2025?
Foreign buyers dominate the Lisbon property market in 2025, accounting for 40-60% of overall transactions and up to 70% in luxury segments and new developments.
This foreign buyer dominance represents a dramatic shift from historical patterns and positions international demand as the primary driver of price appreciation. American and British buyers are particularly prominent, taking advantage of favorable exchange rates and Portugal's attractive residency programs.
The foreign resident population in Portugal has grown to approximately 12% of the total, with many of these residents actively participating in the property market either as owner-occupiers or investors seeking rental income.
Local Portuguese buyers have been increasingly marginalized in their own market, particularly in prime central areas where foreign purchasing power significantly exceeds local affordability. Many local buyers have been forced to look in suburban areas or delay purchases indefinitely.
This demographic shift in buyer composition has fundamental implications for pricing, as foreign buyers often have different price sensitivity levels and are less constrained by local income levels when making purchase decisions.
How much have mortgage approval rates and average down payment requirements changed recently in Lisbon?
Mortgage approval criteria in Lisbon remain stringent, with banks favoring high-income applicants and foreign buyers, though there has been slight tightening for local applicants since 2024.
Down payment requirements vary significantly based on residency status: Portuguese residents typically need 10-20% down payments, while non-residents face requirements of 20-30%. Some banks may require even higher down payments from overseas or non-EU buyers, sometimes reaching 35-40% for certain loan profiles.
Banks have become more selective about income verification and debt-to-income ratios, particularly for local borrowers whose salaries may not support the high property prices. Foreign buyers with substantial assets or high international incomes often find easier approval pathways.
The approval process typically takes 4-8 weeks, with banks requiring extensive documentation including proof of income, tax returns, bank statements, and property valuations. Non-resident buyers face additional documentation requirements including proof of foreign income and tax status.
Despite these requirements, mortgage availability remains adequate for qualified buyers, and the positive yield spread continues to attract leveraged investment purchases from both domestic and international buyers.
What are the typical closing costs, taxes, and ongoing ownership expenses for buying property in Lisbon in 2025?
Total closing costs for purchasing property in Lisbon typically range from 6-10% of the purchase price, representing a significant additional expense beyond the property cost.
The major components include IMT transfer tax (varies by property value, typically 2-6%), Stamp Duty (0.8% of property value), notary fees (€500-€1,500), legal fees (1-2% of purchase price), and registration costs (€200-€500). Property valuation and surveying add another €300-€800 to the total.
Annual property tax (IMI) ranges from 0.3% to 0.45% of the taxable value, which is often below current market value in Lisbon. For a €500,000 property, annual IMI might be €1,500-€2,250 depending on the assessed value and location.
Ongoing ownership expenses include building maintenance fees for apartments (typically €50-€200 monthly), property insurance (€300-€800 annually), and utility connections. Owners must also budget for regular maintenance, which can be substantial in older Lisbon buildings.
It's something we develop in our Portugal property pack.
We did some research and made this infographic to help you quickly compare rental yields of the major cities in Portugal versus those in neighboring countries. It provides a clear view of how this country positions itself as a real estate investment destination, which might interest you if you're planning to invest there.
How do short-term rental regulations in Lisbon affect property demand and prices right now?
New short-term rental licenses have been blocked in 19 central neighborhoods and 8 parishes as of mid-2025, though existing licenses remain unaffected by the regulatory changes.
This regulatory patchwork has created a two-tier market where properties with existing Airbnb licenses command premium prices, while new investors seeking short-term rental opportunities must look to areas outside the restricted zones or focus on long-term rental strategies.
The restrictions have cooled speculative demand for buy-to-let short-term rentals in prime historic areas, though investor interest persists in legal zones and has shifted toward traditional long-term rental investments. Properties in unrestricted areas now benefit from reduced competition for short-term rental licenses.
Many existing short-term rental operators have seen increased profitability due to reduced new supply in central areas, though some have faced pressure from local authorities regarding compliance and neighbor complaints.
Overall, the regulations have had a moderate dampening effect on investor demand in central Lisbon, though foreign buyer interest remains strong for owner-occupation and long-term rental purposes, preventing any significant price declines.
What percentage of household income do Lisbon residents spend on rent or mortgage payments compared to EU averages?
Lisbon residents spend 40-55% of their median household net income on housing costs, substantially exceeding both EU averages and affordability benchmarks.
This compares unfavorably to the EU average of 30-33% of household income spent on housing, positioning Lisbon as one of the least affordable capitals in Europe relative to local purchasing power. The traditional affordability threshold of 30% is widely exceeded by most Lisbon households.
Young professionals and recent graduates face even higher housing cost burdens, often spending 60-70% of their income on rent for basic accommodation. This has led to increased instances of house-sharing, extended family living arrangements, and delayed household formation among young adults.
The situation is particularly acute for renters, who face both high absolute costs and limited tenant protections. Many residents have been forced to move to suburban areas or neighboring municipalities to find affordable housing, creating longer commutes and additional transportation costs.
This housing cost burden severely restricts disposable income for other expenses and savings, creating broader economic challenges for local residents and contributing to concerns about social sustainability in central Lisbon.
What are analysts and major banks forecasting for Lisbon property price growth or decline over the next two to three years?
Analysts and major banks project continued property price increases in Lisbon of 6-10% during 2025, with growth expected to moderate to 2-4% annually by 2027.
The consensus view anticipates sustained but gradually slowing price appreciation, driven by persistent supply constraints and continued foreign demand, though at rates lower than the dramatic increases seen in recent years. Most forecasts do not anticipate price declines, instead expecting a cooling rather than a crash.
Key factors supporting continued growth include Portugal's attractive residency programs, limited housing supply, and ongoing international interest in Lisbon as a lifestyle destination. The positive rental yield environment also continues to attract investment demand from both domestic and international buyers.
Main downside risks identified by analysts include potential economic slowdowns in key source countries for foreign buyers, possible additional regulatory restrictions on foreign ownership, and the eventual impact of new housing supply if construction accelerates significantly.
Any significant downturn would likely require a substantial shift in economic conditions, major policy changes affecting foreign investment, or a dramatic increase in housing supply - none of which appear imminent based on current trends and policy directions.
It's something we develop in our Portugal property pack.
Conclusion
This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.
The evidence clearly indicates that Lisbon's property market is significantly overpriced relative to local economic fundamentals in 2025.
While rental yields remain attractive for investors and price growth is expected to continue, the severe affordability crisis for local residents and the dramatic price-to-income ratios suggest a market primarily driven by external demand rather than sustainable local economics.
Sources
- Lisbon Price Forecasts - INVESTROPA
- Lisbon Property Market Mid-Year Snapshot 2025
- Portugal Average Salary - Relocate.me
- Portugal Inflation Rate - Trading Economics
- Buying Property in Lisbon 2025 Guide
- Portugal Property Prices by Region - Statista
- Property Investment Rankings - Numbeo
- Portugal Rental Yields - Global Property Guide
- Portugal Mortgage Interest Rates
- Foreign Buyers in Portugal - Idealista