2021 saw increases in prices and in total volume sold in Portuguese real estate. Is it high demand or low supply that drives the price increases? In short, both are contributing to the seemingly unstoppable increase.

This weekend, Expresso, one of Portugal’s biggest newspapers, reported that housing saw an average hike of 13,8% in January 2022 compared to the same month last year, “a strong acceleration compared to the 5% rise observed in 2020” and 1.9% price hike compared to just one month prior, December 2021.

They attribute the hike in part to an increase in housing prices in areas habitually considered less expensive and less central, located in the greater metropolitan areas of the cities of Porto and Lisbon. According to Confidencial Imobiliario, the Portuguese real estate market analyst company, this hike was seen in Palmela, Sintra and Mafra for the Lisbon area for example, registering as high as a 20% increase in prices compared to pre-pandemic levels.

According to CBRE, American commercial real estate services and investment firm that stands for Coldwell Banker Richard Ellis, “market fundamentals are robust” and foresee continued growth for 2022 with “still high liquidity to invest in the real estate development market, for project development as well as property investment”.

Bottlenecks for licenses of new builds in Portugal’s capital of Lisbon have been widely reported with Lisbon’s local council struggling to keep up with an upsurge in demand, further straining supply and sending prices upwards. An estimated total of 200,000 houses were sold in 2022 of which 185,800 were old builds and 35% of the total of houses sold were in the Lisbon area, 27% in the Porto area and some 8% in the Algarve. The average price per square metre now stands at €2000, with Lisbon forever registering higher media prices than the rest of the country, at €2438. For new builds, the average price is €3088/ m2 and €1871/m2 for old builds.

Bernardo Campelo of EQTY CAPITAL explains “Much is said on the increased demand being experienced in Portugal in the prime residential space in recent years. Yes, it is true but perhaps not enough is being said about the lack of supply and the impact it is having on the market and prices. Portugal has less than half the EU average of newly completed houses per 1000 inhabitants, and until this is addressed, it is likely that demand will continue to pull away from supply.”

So, who’s buying? Real estate giant, JLL Portugal released their estimates in their snapshot of the 2021, with only 11% of the total houses bought in 2021 purchased by foreigners, who invested heavily in opportunities stemming from distressed hotel groups, to affordable housing projects and other commercial real estate options, as well as a sharp uptake in real estate-focused funds.

With the Portuguese economy projected to expand by 5.3% in 2022, according to the European Commission’s forecast and a general lack of supply of new builds, many houses are switching hands to accommodate the increase in demand for central and historic parts of Lisbon where space is finite, and where the Portuguese are still the number 1 highest buyer in the premium segment.

Luiz Maia of Maia International Properties: “Talk of a real estate bubble in Portugal ignores the facts and reality that most buyers, at least from my own experience are those moving here and not buying a second home. Let’s not forget that in the high-end property sector that 60% of sales were Portuguese driven. Interest is increasingly focused on projects that combine quality in finishes, sustainability in construction, outdoor space, and the offer of services. Early enquiries for 2022 point to a resumption of high investment volumes and not to a slow down”.