For the first time since late 2022, demand and sales increased, signaling a positive shift in the market. The sentiment indicator reached +5 percentage points (p.p.), a significant improvement from the -70 p.p. recorded in the same period of 2023. This resurgence in demand has also led to an increase in property prices, with the price sentiment indicator climbing to +35 p.p., the highest level since mid-2022.

Despite the difficult conditions of the previous years, where rising interest rates stalled price growth, prices never declined. At the end of 2023, the price sentiment was at +3 p.p., indicating stagnation. However, with the return of demand, the overall market sentiment has improved, pushing the indicator to +20 p.p., the highest level since the start of this market cycle.

The Expectations Indicator, which reflects developers' future outlook on sales and prices, hit +36 p.p., one of the highest figures in the history of the Portuguese Investment Property Survey. This surge reflects optimism similar to that seen during the post-pandemic recovery between 2021 and early 2022, with strong future expectations driving both sales and price growth.

A key driver of this renewed momentum is the anticipated decline in interest rates. By the end of 2023, expectations of faster rate cuts had led to a surge in land demand, which initially fell when the European Central Bank (ECB) postponed its decision. However, with interest rates now on a clear downward trend, land demand has rebounded in the third quarter of 2024. The percentage of agents reporting high or very high demand for land rose from 41% in the previous quarter to 50%.

Despite the overall positive outlook, the focus of new property projects remains primarily on new construction, with 80% of the market geared toward such operations. However, a significant portion of these developments—around 75%—are aimed at international buyers, leaving only 25% focused on domestic demand. This imbalance has persisted in recent years, as local buyers struggle to meet the high prices.

In contrast to the recovery in property development, the Build-to-Rent sector remains less attractive, with the index falling to -26%, its lowest level in the past 18 months. Only the -52% recorded after the announcement of the "Mais Habitação" package was lower. The challenges facing Build-to-Rent are largely due to rising construction costs and concerns about profitability in a fluctuating interest rate environment.

Affordable housing development also remains constrained by the prospect of rising construction costs. Despite the positive sentiment in the broader market, developers are cautious about large-scale affordable housing projects due to financial risks.

In summary, Portugal's property development sector is on the path to recovery, driven by lower interest rates and rising demand. However, challenges remain in the Build-to-Rent and affordable housing markets, as rising costs and limited profitability continue to hinder growth in these areas.

Source: Portuguese Investment Property Survey

Author

Paulo Lopes is a multi-talent Portuguese citizen who made his Master of Economics in Switzerland and studied law at Lusófona in Lisbon - CEO of Casaiberia in Lisbon and Algarve.

Paulo Lopes