The Portuguese real estate market has been in a state of flux lately. The Golden Visa program no longer includes coastal properties and may be cancelled completely, new laws around AL short-term rental licensing are a concern, mortgage rates are rising, and property prices are pushing local buyers out of the market.
Despite these factors, the Portuguese market is holding up well, largely because the supply of new properties is lagging behind demand. This lag is due in part to the fact that construction of properties is slowed by covid lockdowns, resulting in a shortage of inventory. Because of this demand, properties that come on the market typically sell within weeks and often within days. This will likely continue until supply exceeds demand, which is not expected in the next few years.
The Portuguese travel and tourism sector has been particularly affected by travel restrictions imposed by governments to contain the spread of covid and prevent an increase in infections in general. With the easing of these travel restrictions, numerous advance bookings for accommodations signal that this summer will be a record one for tourism, which has a knock-on increase of overseas buyers. This increase in foreign buyers is helping drive prices steadily higher. Average property prices increased by 1% per month across Portugal and by 1.3% in April this year.
As interest rates rise to contain inflation, mortgage lenders are seeing increased demand for fixed rates over mixed and floating rates due to market uncertainties. Buyers generally prefer to lock in their interest rate to know what their rate will be in the long run, rather than opting for a lower-rate adjustable mortgage that could leave them vulnerable in later years. Mortgage applications from overseas buyers looking to move to Portugal are also on the rise. Buyers from the UK and Ireland remain strong, but we are seeing an increase in American buyers due to the comparatively low cost of living, generous tax incentives, healthcare system, and quality of life.
Overall, the Portuguese real estate market remains strong despite the changes affecting the industry and buying patterns are changing. Buyers in need of a mortgage are applying early to secure a fixed rate ahead of anticipated interest rate increases. Buyers with pre-approval and those paying with cash are finding advantages in the bidding process. Home prices are expected to continue to rise as long as borrowing rates remain under control and buyer demand outweighs seller demand.