Portugal

How prices got here

Across the EU, house prices grew by about half between 2014 and 2024. In Portugal they grew by more than 200%, a rise matched only by Hungary, Lithuania, Czechia, Estonia, Bulgaria and Poland. Inflation explains some of it. Even after inflation, Portuguese prices rose by more than half over the decade, against a quarter for the EU as a whole.

What sets Portugal apart is that incomes did not keep up. In most of central and eastern Europe, wages rose as fast as houses, so the ratio of price to income moved little. In Portugal the ratio is more than 20% higher than ten years ago, the largest deterioration in the EU, ahead of the Netherlands, Hungary, Luxembourg and Ireland.

The pandemic doubled the pace, the interest-rate rise of 2022 slowed it, and since 2024 prices have been climbing again. The Commission expects that to continue across the EU while new supply stays constrained, and it notes that transactions in Portugal never fell as far as elsewhere: Portugal, Spain, Cyprus, Bulgaria and Poland are the only countries where sales activity remains strong.

Overvalued, by the Commission's measure

The Commission estimates how far prices sit from what fundamentals justify by averaging three measures: a model of income, rates and demography, the ratio of price to income, and the ratio of price to rent. At the end of 2024 that gap was about 35% in Portugal, the widest in the EU. Luxembourg, the Netherlands, Austria, Greece, Czechia, Sweden and Latvia sat between 10% and 20%.

In every one of those countries except the Netherlands the gap narrowed in 2024. In Portugal it widened, and Portugal is the only country where it did so significantly. The measure is a national average: a coastal town within reach of Lisbon is more likely above it than below.

An overvaluation estimate is not a forecast of a fall. The paper's own outlook is for prices to keep rising on constrained supply and income growth. It does mean that a buyer today is paying a price the Commission considers unsupported by what Portuguese households earn or what the home would rent for.

Who is buying, and with what

Only about half of Portuguese housing transactions are financed with a mortgage, the lowest share in the EU with Bulgaria. The Commission attributes this to cross-border purchases in tourist areas. In a coastal town the other half of the market is people arriving with cash from abroad, and their budgets, not local wages, set the asking prices.

At the national level, the paper finds that Portugal is the EU country where tourism has had the strongest effect on house prices. Short-term rentals contract the long-term rental market and add investment demand, and that demand is driven by expected gains rather than by what the home is worth to live in, which makes a market more volatile in both directions.

Portuguese households are being priced out of that competition. Their borrowing capacity fell between 2019 and 2024 as rates rose, one of six countries where it did, and the share of homeowners with a mortgage is rising from a low base as younger buyers can no longer buy outright. A tightness towards short lets and foreign buyers in some towns follows from that.

Supply

Portugal is one of the few EU countries where building permits are not at historic lows; Croatia, Spain and Greece are the others. But supply responds slowly to prices here, more slowly than in Spain or Ireland, and the permit process is the longest in the EU: the statutory deadline for a decision runs to 31 weeks, and the World Bank counted 160 days to complete all construction procedures.

Vacancy is high, with Portugal among the six countries where the share of empty homes stands out, though the statistics count second homes as vacant in some countries and not others. For a buyer planning to build or to renovate substantially, the permit timeline is the practical constraint.

Borrowing and buying in Portugal

The Bank of Portugal caps a mortgage at 80% of the valuation, or 90% for a primary residence, with debt service capped at 50% of income for at least 85% of new loans, and new mortgages average 30 years. Variable rates have given way to fixed rates in recent years, but the fixed periods remain short, so a rate change reaches the monthly payment sooner than it would in Germany or France.

Portugal offers no mortgage subsidies or state guarantees, and mortgage interest relief applies only to loans taken out before 2012. Transfer costs on a purchase run to about 7,3% of the property value, mainly IMT and stamp duty, against 6,6% in Germany and 0,6% in Denmark. Rents are set freely and rise with the price index.

What this means if you are buying

The paper does not say whether to buy. It does describe the market a foreign buyer is entering, and four things follow from that description.

• You are buying at the top of the EU's valuation range. Do not underwrite the purchase on further gains; check whether the decision still holds if the price is 20 to 30% lower in five years.
• Round-trip costs are real. About 7% on the way in, plus the agent's fee on the way out, means a short holding period cannot absorb a flat market. Plan to hold for many years.
• The price is tied to foreign demand and to short-let rules, not to Portuguese wages. Portugal tightened short-let licensing in 2023 and loosened it again in 2024; each town's council sets its own containment, and the town pages carry the current rule.
• Financing is workable but not generous: 80% of value for a second home, a short fixed period, no relief on the interest, and the slowest permits in the EU if you mean to build.