Portugal's Housing Market Nears Overheating — What Buyers and Investors Need to Know

Housing prices in Portugal continue to rise in 2025 due to strong demand, limited supply, and slow construction rates, Bloomberg reports, citing DBRS Morningstar data. Despite the removal of real estate from the Golden Visa program, international demand remains strong, fueling further pressure on the market.

Foreign Demand and Premium Property

Jorge Costa, COO of Knight Frank Portugal, notes that about one-third of the company's sales this year were to U.S. buyers:
- Affluent Americans are drawn by Portugal’s sunny climate and lower cost of living.
- Premium real estate continues to attract foreign buyers, intensifying supply shortages.

According to Global Property Guide:
- Average gross rental yields in late 2024 were 4.96%.
- Studios in Lisbon yielded about 5.61%, three-bedroom apartments around 3.89%.
- Yields reached up to 7.56% in Sintra and 7% in central areas like Peniche and Óbidos.

Most wealthy foreigners, however, buy properties for lifestyle, not rental income.

Overheating Indicators

The booming market has favored property owners but created difficulties for local buyers:
- Savills reports that prime Lisbon property prices now exceed those in Madrid, Berlin, and Amsterdam.
- Caixabank and ECB data highlight Portugal among countries showing the most signs of housing market overheating.
- Real housing prices have risen by over 25% since 2019, exceeding pre-crisis peaks.
- Low interest rates between 2020–2022, pent-up post-pandemic demand, and strong foreign investment drove this surge.

Affordability Crisis

While property prices rose 55% over the past decade, average incomes increased by only 9%:
- Social housing accounts for just 2% of the market — one of the lowest in the EU.
- Growing social tensions are a concern.

The government plans to:
- Build 59,000 new homes
- Launch a mortgage guarantee program for citizens aged 18–35

However, according to DBRS, these measures will take time to impact the market.

Shifting Demand to Suburban Areas

With Lisbon and Porto becoming unaffordable, buyers are looking to suburban municipalities:
- Greater Lisbon Area tops demand: Amadora, Loures, Oeiras, Vila Franca de Xira, Odivelas
- Lisbon itself ranks 8th by online search activity
- Around Porto: Valongo, Paredes, Maia, Gondomar, Matosinhos, Vila do Conde are increasingly popular
- Main factors: affordability, employment access, healthcare, education, and quality of life.

Market Outlook

According to the Property Market-Index:
- Portuguese real estate is expected to grow 5.8% in 2025.
- CBRE forecasts €2.5 billion investment in 2025 (+8% YoY).
- Strong activity anticipated in retail and hospitality sectors.

Colliers predicts 2025 will be an active year for real estate tied to consumption and demographic trends — residential, healthcare, and education facilities.

Experts warn that external demand dependence and persistent supply shortages make the market vulnerable to fluctuations. Long-term stability will require more construction and balanced regulatory policies.