Between 2015 and 2023, the cumulative increase in house prices in Portugal stood at 105.8%, whilst the average bank valuation for the first 10 months of 2024 rose by 11% compared with the same period last year.
Ongoing market constraints give reason to expect further growth in property prices in Portugal in 2025 as well.
Although prices for building materials have stabilised, the market is still short of 90,000 construction workers.
There is still a shortage of licences: over the year, licences were issued for 28 thousand housing units. To understand just how little this is: 12 thousand young people have already taken advantage of exemption from the IMT tax when purchasing a first home, and that's for the quarter.
Falling ECB interest rates have exacerbated the shortage and intensified the structural problems of the industry. Households that had been waiting for the normalisation of Euribor have now entered the residential property market.
Preferential VAT for construction companies and the increase in developable land will only help in the medium term, when one can expect if not a price correction, then a less turbulent growth in them.
Conditions for reducing the deficit
The new land law, passed on 28/12/2024, approved an important change in territorial planning, which allows houses to be built where it was previously prohibited. And the decision on which areas to incorporate into urban limits will now be made at the local level. This innovation permits the urbanisation of large new plots and the amendment of the master plan through a simplified procedure, following 20 days of public consultation. It is expected that this measure will increase the number of residential complexes under construction.
i.e. municipalities will now be able to rezone rural land as urban land, according to the new Legal Regime of Territorial Management Instruments (RJIGT).
Although landowners may propose changing the designation of their plot, the request for the reclassification of rural land into urban land is initiated by the local authorities, who begin with a proposal for the readjustment of land use. This must present a brief justification for the reclassification, the area of the plot, the total floor area, the number of homes, and a plan for urbanisation and construction works.
Following this, the land rezoning proposal is sent for public consultation for 20 days. Next, the municipality submits the final document to the Municipal Council.
The new measure will bring new development plots to the market, which will pave the way for new residential complexes in attractive locations, especially in municipalities with high tourism pressure.
For the inland regions, however, the new law is of little use – there are already plenty of suitable plots there today. For example, in the municipality Alandroal (2 hours from the capital on the road to Elvash-Badajoz), between 30 and 40% of undeveloped land within the city limits. And the mayor Figueira de Castelo Rodrigo, where the lowest price per square metre in the country is found, believes that the new measure will even harm remote parishes, arguing that “the best way to help the coast is to develop the interior”.
