Portugal property outlook: is a price drop coming?

Authored by the expert who managed and guided the team behind the Portugal Property Pack

Everything you need to know before buying real estate is included in our Portugal Property Pack

Who is the author of this content?

INVESTROPA

A team specialized in real estate investing in European countries

We are a team of financial experts, legal professionals, developers, and local real estate specialists dedicated to helping people like you avoid mistakes when investing in real estate in a foreign place, particularly in Portugal. If you'd like to learn more about us, you can check our presentation page.

How this content was created 🔎📝

At InvestRopa, we explore the Portuguese real estate market every day. Our team doesn't just analyze data from a distance—we're actively engaging with local realtors, investors, and property managers in cities like Lisbon, Porto, and Faro. This hands-on approach allows us to gain a deep understanding of the market from the inside out.

These observations are originally based on what we've learned through these conversations and our observations. But it was not enough. To back them up, we also needed to rely on trusted resources

We prioritize accuracy and authority. Trends lacking solid data or expert validation were excluded.

Trustworthiness is central to our work. Every source and citation is clearly listed, ensuring transparency. A writing AI-powered tool was used solely to refine readability and engagement.

To make the information accessible, our team designed custom infographics that clarify key points. We hope you will like them! All illustrations and media were created in-house and added manually.

Fact-checked and reviewed by our local expert

✓✓✓

João Morais 🇵🇹

Founder | Real Estate Advisor, at Wilderness Investments

João Morais is an expert in the Portuguese real estate market. With a network of trusted connections and years of experience, João ensures a seamless experience, guiding clients through every step of the buying process, from property search to contract negotiations. After speaking with him, we reviewed the blog post, made some changes, and included his experience to make it richer.

How have property prices in Portugal actually moved over the past 12 to 24 months?

Portuguese property prices have surged significantly over the past year.

House prices in Portugal increased by approximately 9-10% over the last 12 months, with even stronger quarterly surges recorded in late 2024. This growth rate has outpaced most European Union countries, positioning Portugal as one of the fastest-growing property markets in Europe.

The median national price reached €1,777-€1,870 per square meter in 2024, representing substantial appreciation from previous years. Premium areas like Lisbon and the Algarve experienced annual growth exceeding 10%, while Madeira saw an exceptional spike of 54.9% in new home sales during peak demand periods.

This upward trajectory has been driven by a combination of high demand, constrained supply, and shifting buyer demographics that favor the Portuguese market over many European alternatives.

As of September 2025, the momentum continues with experts noting sustained price pressure across major urban centers and coastal regions.

What are the current average price per square meter trends in Lisbon, Porto, and the Algarve compared to smaller inland towns?

There's a dramatic price gap between major Portuguese cities and smaller inland towns.

Region	Average Price (€/m²)	Market Characteristics
Lisbon City Center	€5,560-€6,934	Highest prices, strong rental demand
Lisbon Metro Area	€3,644-€4,935	Rapid growth, more affordable than center
Porto City Center	€4,296-€4,883	Growing demand, tech sector influence
Algarve Coastal	€3,334-€4,385	Tourism and luxury market driven
Madeira	€3,003	Island premium, recent demand spike
Smaller Inland Towns	€610-€1,591	Budget-friendly, slower appreciation
Rural/Remote Areas	€400-€800	Limited demand, renovation opportunities

How is buyer demand from foreign investors versus local buyers shifting right now?

The Portuguese property market is experiencing a significant shift toward domestic buyers.

Foreign investment activity decreased notably in 2024 due to policy changes, including modifications to the Golden Visa program and stricter short-term rental regulations. These changes have reduced speculative activity from international buyers who previously drove demand in premium locations.

Domestic buyers now represent the primary growth driver in the Portuguese property market, accounting for an increasing share of transactions. Local purchasers are particularly active in urban centers and suburbs, supported by improved mortgage conditions and strong employment levels.

This rebalancing toward local demand has created a more stable market foundation, though it has also intensified affordability challenges for Portuguese residents in high-demand areas like Lisbon and Porto.

It's something we develop in our Portugal property pack.

What are mortgage interest rates in Portugal today, and how have they changed compared to last year?

Portuguese mortgage rates have become more favorable for borrowers in 2025.

As of September 2025, average mortgage rates range from 3.22% to 3.57%, showing a downward trend since early 2025. Variable rates, which are closely tied to the Euribor, are projected to soften further as European monetary policy adjusts.

Fixed-rate mortgages typically range from 3.5% to 4.5%, offering stability for buyers concerned about future rate fluctuations. The overall decline in borrowing costs has improved affordability for qualified buyers and helped sustain transaction volumes despite rising property prices.

This easing monetary environment represents a significant improvement from the higher rates experienced in 2023 and early 2024, providing crucial support for both domestic and international buyers in the Portuguese market.

Banks are competing aggressively for quality borrowers, with some institutions offering preferential rates for properties in specific regions or for buyers with strong financial profiles.

What is the current rental yield in key Portuguese cities, and is it moving up or down?

Rental yields in major Portuguese cities are generally stable but under pressure from rising property prices.

Prime locations in Lisbon and Porto typically offer gross rental yields around 4-6%, though these figures vary significantly based on property type and exact location. The Algarve coastal region tends to offer lower yields due to luxury pricing, though seasonal rental potential can boost returns for properties in tourist areas.

Yields are facing downward pressure as property purchase prices have risen faster than rental rates, particularly in urban centers where rent control measures and tenant protection laws limit rental growth. However, strong demand for quality rental properties continues to support occupancy rates.

Investors are finding better yield opportunities in emerging neighborhoods and secondary cities, where property prices remain more reasonable relative to rental income potential.

The shift away from short-term rentals due to regulatory changes has increased the supply of long-term rental properties, which may continue to moderate yield expectations in tourist-heavy areas.

How many new building permits and housing projects are being approved, and what does that mean for supply in the next 2 to 3 years?

Construction activity is increasing but still insufficient to address Portugal's housing supply shortage.

Transaction volume surged 14.5% in 2024 to 156,325 units, and building permit approvals are trending upward as developers respond to strong demand. However, construction activity continues to struggle with closing supply gaps, particularly in high-demand urban areas.

New home supply remains especially constrained in Lisbon, Porto, and the Algarve, where land availability and construction costs limit development pace. The approval process for new projects has improved, but actual construction timelines often extend 18-24 months due to labor shortages and material costs.

Over the next 2-3 years, the market will likely remain supply-constrained, which should continue supporting property values. Most new supply is concentrated in suburban and secondary markets rather than prime urban locations where demand is highest.

This supply-demand imbalance suggests that property prices will maintain upward pressure, making any significant price drop unlikely in the near term.

How many properties are currently sitting on the market unsold, and how long are they taking to sell on average?

Property inventory remains tight across Portugal's major markets.

Homes in Lisbon and coastal regions sell quickly due to strong demand and limited supply, with well-priced properties often receiving multiple offers. The average time on market varies significantly by location, with prime urban properties selling within 2-3 months while rural properties may take 6-12 months or longer.

The combination of reduced foreign speculative activity and increased domestic buyer demand has created a more balanced but still competitive market. Properties priced correctly for their location and condition typically sell faster than the historical average.

Inventory levels are particularly low in Lisbon's city center and Porto's prime neighborhoods, where buyer competition remains intense. The Algarve experiences seasonal variations, with higher inventory during winter months when tourist demand decreases.

This tight inventory situation continues to support seller leverage and price stability across Portugal's major property markets.

What role are government policies, such as the Golden Visa or changes to short-term rental rules, playing in shaping demand?

Government policy changes have significantly reshuffled demand patterns in Portugal's property market.

1. Golden Visa modifications: Changes to investment thresholds and eligible areas have reduced speculative foreign buying, particularly in Lisbon and Porto
2. Short-term rental restrictions: New regulations limiting Airbnb-style rentals have decreased investor demand for small urban apartments
3. Tax policy adjustments: Property transfer taxes and holding costs have been modified to favor long-term residents over short-term investors
4. Resident protection measures: Policies prioritizing local buyers in certain areas have shifted market dynamics toward domestic demand
5. Planning permission changes: Streamlined approval processes for certain development types are gradually improving supply prospects

These policies have successfully redirected demand toward long-term residents and owner-occupiers, cooling some of the speculative activity that previously drove rapid price increases. The market now favors genuine residents over pure investment plays, which should create more sustainable long-term growth patterns.

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 strong is Portugal's overall economy right now—GDP growth, inflation, unemployment—and how does that feed into housing affordability?

Portugal's economy is performing well relative to European standards, supporting continued housing demand.

GDP growth remains above the EU average, inflation has cooled from previous highs, and unemployment rates are relatively low compared to historical levels. These positive economic indicators continue to support robust demand for housing across the country.

However, the strong economy has also contributed to increased household debt levels and capital exposure as more residents stretch to enter the property market. Mortgage repayment ratios remain manageable for most borrowers, but affordability pressures are building in expensive urban areas.

The economic strength has attracted both domestic investment and international interest, creating a feedback loop that supports property values but challenges first-time buyers and lower-income households.

Employment growth in technology, tourism, and services sectors continues to drive demand in major cities, while rural areas benefit from remote work trends and lifestyle migration patterns.

What are locals' average household incomes compared to average housing costs, and is affordability getting worse or better?

Housing affordability is deteriorating for local Portuguese residents, particularly in major cities.

Average household incomes are lagging significantly behind property price appreciation, especially in urban centers like Lisbon and Porto. Housing costs as a percentage of income are worsening in these prime markets, creating genuine affordability challenges for local buyers.

The situation is less acute in smaller inland towns where property prices remain more aligned with local income levels. However, the concentration of employment opportunities in expensive coastal and urban areas means many residents have limited alternatives.

Young professionals and first-time buyers are increasingly priced out of traditional homeownership areas, leading to longer commutes, shared accommodation, or delayed home purchases. This trend is creating social and political pressure for additional housing policy interventions.

It's something we develop in our Portugal property pack.

How are international comparisons—like Spain, Italy, or Greece—relevant to predicting what might happen in Portugal's property market?

Portugal's property market is outperforming most Southern European neighbors, but this creates both opportunities and risks.

Country	Price Growth Rate	Relative Attractiveness
Portugal	9-10% annually	High growth, strong demand
Spain	5-7% annually	Slower growth, larger market
Italy	3-5% annually	Moderate growth, regional variation
Greece	4-6% annually	Recovery phase, lower prices
France	2-4% annually	Stable but expensive

Portugal's faster price appreciation reflects its popularity among international buyers and favorable economic conditions. However, this also means Portuguese properties are becoming less affordable relative to regional alternatives.

What do experts and major banks forecast for Portuguese property prices over the next 12 months, and do they expect a drop or just a slowdown?

The expert consensus strongly favors continued growth with a moderation in pace rather than any price drop.

Major banks and property analysts forecast single-digit annual price increases for 2025-2026, representing a slowdown from the double-digit growth of recent years. This moderation is expected to help stabilize affordability concerns while maintaining market momentum.

Few experts predict an outright price decline barring major economic shocks such as a European recession or significant changes to Portugal's fiscal policy. The fundamental drivers of demand—including lifestyle appeal, favorable climate, and political stability—remain intact.

The consensus view suggests that policy changes reducing speculative demand will help create a more sustainable growth trajectory. Banks are particularly optimistic about continued transaction volume supported by lower mortgage rates and domestic buyer strength.

Most forecasts indicate that Portugal's property market will continue outperforming European averages, though at a more measured pace that allows income growth to gradually catch up with property values.

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.

Sources

1. Global Property Guide - Portugal Price History
2. Global Citizen Solutions - Portugal Real Estate Market
3. SPR Algarve - House Price Rise in Portugal 2024
4. Roca Estate - Portugal House Price Index 2024
5. InvestRopa - Average House Price Portugal
6. Roca Estate - Portugal Housing Loan Interest Rates
7. Properstar - Portugal House Prices
8. Portugal Property - Mortgage Rates Outlook 2025-2026