Lisbon and Porto Housing Market Update: Transactions Dip 5.4%, But New Home Sales Rise 6.6% Amid Supply Challenges

The Portuguese residential real estate market is currently undergoing a significant adjustment phase, as detailed in the latest analysis from Savills Portugal. While overall housing transactions across the nation experienced a 5.4% decrease in the first half of 2026 compared to the preceding year, a contrasting trend emerged in the new housing segment, which recorded a robust 6.6% growth in sales. This nuanced market behavior, following two years of exceptional growth, is being interpreted as a normalization rather than an indication of fundamental market weakening, presenting both challenges and strategic opportunities for foreign investors and expats.

The observed reduction in transaction volumes was consistent across Portugal's two primary urban real estate markets. The Greater Lisbon region registered 22,663 sales during the first half of the year, representing a 7.1% year-on-year decline. Similarly, Porto recorded 12,483 housing transactions, a 9% decrease over the same period. Despite these contractions, it is crucial for investors to note that transaction volumes in both cities remained 7.5% above the average of the first halves of the preceding three years. This metric suggests a market recalibration rather than a significant downturn, indicating underlying stability and sustained interest.

Alexandra Gomes, Head of Research at Savills Portugal, provided an insightful perspective on these dynamics, stating, "The first-half data demonstrates a market in a stabilization phase. Even with a year-on-year decrease in transactions, the volume remains above the average of the last three years. Lisbon and Porto have adjusted their activity but maintain historically high levels, while specific segments – notably new housing in Lisbon and the high-end market – exhibit very active demand, with growth that reinforces investor confidence." This expert assessment underscores the importance of granular analysis, distinguishing between broad market trends and the performance of specific, high-value segments.

Divergent Trends: New Construction vs. Resale Market

A critical divergence in the current market narrative is the robust performance of new housing construction, particularly within Greater Lisbon. Sales in this segment not only defied the overall downward trend but actually increased by 6.6%, reaching 3,294 units. This figure represents the highest volume recorded for a first half in the historical series, signaling strong underlying demand for modern, purpose-built properties. Conversely, transactions involving used housing experienced a 9.1% decline, indicating a clear shift in buyer preference towards newer stock.

Within the municipality of Lisbon, the demand for new housing was even more pronounced, with sales surging by an impressive 39.2% to 1,709 units. This growth occurred against a backdrop of falling available supply for new housing, which decreased by 28.5%. This imbalance highlights a significant opportunity for developers and investors in the new build sector. Prices for new housing in the high-end market in Lisbon remained stable, commanding an average of €7,692 per square meter. In Porto, new housing sales also demonstrated strength, rising by 11.0%, in stark contrast to a 16.0% decrease in used housing. The available supply in Porto grew by 9.5% to 25,727 properties in the second quarter, while Vila Nova de Gaia notably surpassed Porto in sales volume, recording 3,249 transactions.

Financial Landscape and Construction Cost Pressures

The financial sector has played a supportive role, with Portuguese banks granting €16 billion in housing loans, marking a substantial 19% increase year-on-year. The average interest rate on new mortgage contracts stood at 2.93%, slightly above the March minimum of 2.81%. This indicates continued access to financing, albeit at slightly higher costs, which is a key consideration for foreign buyers utilizing local lending. Investors can explore mortgage options and eligibility using the mortgage eligibility scanner.

However, the supply side faces persistent challenges. Construction inflation accelerated once again, reaching 6.9% in May, the highest value recorded since early 2023. This inflationary pressure is primarily driven by rising material and labor costs, which began to exert significant influence for the first time since 2022. Despite these cost pressures, Portugal successfully completed 27,301 new family homes in 2025, marking the tenth consecutive year of increase and surpassing the 2011 delivery levels. This sustained delivery, however, is still insufficient to meet the burgeoning demand in prime urban areas.

Regional Disparities and Supply Deficits

A closer examination of contract closures reveals significant regional disparities. In Lisbon, 1,675 contracts were finalized in the first half of the year, representing the third consecutive year of growth. However, new housing accounted for only 7% of these contracts, underscoring a severe shortage of new stock in the capital. Conversely, in Porto, 387 contracts were closed, marking the highest value in the series and an 8% increase over the previous maximum in 2022. New housing in Porto represented a more substantial 21% of these contracts, three times higher than in Lisbon, indicating a relatively better, though still constrained, supply situation.

Rita Bueri, Head of Residential Lisbon at Savills Portugal, provided a crucial clarification on the market's dual nature: "Two things are happening at the same time, and it's important not to confuse them. New housing is finally responding in Lisbon: it grew by 6.6% and had the best first half ever, which, with construction costs rising by 6.9%, reduces the risk for buyers. In the high-end, the logic is reversed: sales rose by 39.2% with available supply falling 18.7%, compared to 28.5% in new housing. I have clients competing for the same house and for the pipeline I know. This can change in a maximum of two years. Until then, as long as supply does not keep up with demand, the pressure shifts to rents, and it is in this segment that it will be most felt. Lisbon and Porto do not have a demand problem. They have a supply problem, and that is not solved with time: it is solved with more construction. Whoever can deliver in the next two years will find a market waiting." This expert perspective highlights the critical role of new construction in alleviating market pressures and capitalizing on sustained demand.

Strategic Investment Considerations for Foreign Investors

For foreign investors and expats, these market dynamics present a complex but potentially lucrative landscape. The robust demand for new and high-end housing, particularly in Lisbon, signals strong capital appreciation potential for well-located, modern properties. The persistent supply deficit, as highlighted by Savills, suggests that properties entering the market in the next two years are likely to find eager buyers and tenants, potentially leading to favorable rental yields. Investors should consider focusing on new developments or properties suitable for renovation in prime Lisbon neighborhoods like Avenidas Novas or Parque das Nações, where demand is highest. The rental yield calculator can assist in assessing potential returns.

The rising construction costs, while a challenge for developers, also reduce the risk for buyers of new properties, as the value of new stock is underpinned by these increasing input costs. However, the pressure on rents due to undersupply necessitates a careful evaluation of investment strategies, particularly for buy-to-let models. Consulting with English-speaking real estate agents specializing in investment properties and accountants familiar with the NHR tax regime is crucial for optimizing investment decisions. Furthermore, platforms like HomeOS's fair price analysis can provide independent valuations, while pre-purchase inspections are vital for mitigating risks, especially with older properties.

Future Outlook and Strategic Imperatives

The Portuguese residential market, particularly in its key urban centers of Lisbon and Porto, is characterized by a robust underlying demand that is currently constrained by insufficient supply. This dynamic creates a compelling environment for strategic investment in new construction and urban regeneration projects. The continued growth in new housing sales, even amidst a broader transaction slowdown, underscores the market's capacity for sustained expansion, provided the supply deficit can be addressed.

For developers, the imperative is clear: accelerate construction to meet the waiting demand. For investors, the current period of adjustment offers an opportunity to identify and capitalize on high-potential assets, particularly in the new build and high-end segments. The long-term outlook remains positive, driven by Portugal's appeal to international buyers and its stable economic environment. For comprehensive market intelligence and tailored investment strategies, contact realestate-lisbon.com.