What are the 5 biggest threats to the residential real estate market in Portugal in 2023?

Clouds hanging over Lisbons deserted Praça de Commércio and its housing market. Spoiled by sunshine and rising values for many years, investors are starting to look at threats to the residential market. Will buyers stay away?


Once one of Europe’s worst performing economies and housing markets, Portugal has shown a remarkable upswing over the past 10 years and, more recently, resilience against some of the covid-related as well as post-covid challenges.

Shaken up by international and national issues many investors ask themselves if it’s now all over and the market is about to plummet as rapidly as it rose.

‘One man’s joy is another man’s sorrow’, meaning that you could also say that something that poses a threat to one investor is an opportunity for another one.

In the following we understand threats as any disruptive development that reduces the performance of the market rather than just specific groups of market participants.

We will look at arising opportunities in troubled markets in separate posts if and when the discussed threats gain traction in the market.

Political threats

Whilst not the most obvious threat to residential real estate investment markets, political factors impact all areas of life and are on of the most important framing factors.

Traditionally, but especially in the past few years leftwing parties represented the majority in parliament. One of their goals has been to improve the populations’ living conditions by increasing regulations of parts of the economy.

In 2023 the housing law package ‘mais habitação’, drawn up in March and very likely to come into effect end of October, changes significant parts of the investment environment. Some of the most severe changes regard short-term letting, Golden Visa, licensing, forced letting and rental caps.

Not only do these measures have direct impact on supply and demand as well as prices; they also shake investors’ confidence and have the potential to reduce future capital inflows and, hence, property prices. One of the major factors to attract international capital are political stability and a favourable investment environment. Therefore, short-notice and strong changes can have a strong negative reaction.

What is more, some of the planned measures have not yet been worked out all the way to the practical implementation. That means that at least for the end of 2023 and maybe beyond friction and unclarity remains around fundamental topics such as the licensing process.

Economic threats

Like most countries and asset classes, the abrupt rise in interest rates creates difficulties for many market participants. Since interest rates are decisive for investment decisions, values and the costs of financing the impact is very strong.

The consequences will only become visible with time since many occur with time lags.  

This can lead to gaps between sellers’ and buyers’ pricing expectations which may not be bridged in the short term and the transaction market get stuck with the situation (as it is already the case in most European commercial real estate markets).

However, this threat may be offset or even reversed if mortgage rates are updated (most private mortgages are not fixed) and many owners are forced to sell at the same time.

Market threats

Firstly, more and more investors remain in standby position since they expect pricing corrections as a result of interest rate changes.

Secondly, the termination of real estate investment as a path to obtain a Golden Visa removed a share of the demand from the market.

Thirdly, domestic demand is very dependent on debt conditions which have worsened significantly.

The above market threats, amongst other factors, have already contributed to a slowing dynamic in Portugal’s residential market – apartments remain longer in the market and the rise in prices has been much lower in Q2 2023 than in most quarters of the previous years.

Legal threats

Parts of the above-mentioned housing market law package ‘mais habitação’ is a change in the licencing process, which is designed to ease and speed up the licensing. However, some of the details have not been entirely defined, which means an adjustment period with some insecurity regarding responsibilities and steps may hamper the process before it becomes a routine for all stakeholders and gets more efficient. This will affect new construction and refurbishments that require a licence from the municipality.

In the medium-term to long-term it can be expected that more licences will be granted quicker, which increase supply of residential space to the market. This may put pressure on the sales prices, however, there is a fair likelihood that there will not be surplus supply.

Construction cost threats

Lack of qualified labour and strong demand for construction services have already caused costs to increase year after year before covid. With the beginning of the war in Ukraine building materials have become more expensive and drove those costs further up.

In addition, labour costs are still rising supported by high inflation in correlation with high interest rates. Further, demand for construction and refurbishment services remains strong.

The above combined with pressure on house prices can led to decreasing margins for developers and owners.

Ownership threats

Most of the above will affect owners of residential real estate more indirectly than directly. However, there are some direct threats that owners should have on their radar in 2023.

Firstly, this would be the new law contained in ‘mais habitação’ that allows for the forced leasing of permanently vacant residential units. It limits the owners’ options to use their property as planned and may bind to an unfavourable tenancy which they have to stick to.

Secondly, with 2023 bringing some summer temperature records the requirements for isolation of façades, windows, doors and roofs as well as technical parts, such as air conditioning are rising. Buildings which do not fulfil these requirements may face limited rentability and saleability in the future or respective works need to be factored in.


2023 is undoubtedly a year with some unusual threats to residential real estate markets in Portugal.

These include threats on the macro level, such as politics and the economic environment, but also some specific to the real estate market and its legal framework. Depending on the respective market participants construction cost threats and challenges for existing owners add to that.

It is important for aspiring investors as well as owners to keep an eye on upcoming changes and evaluate options for action and react timely where necessary.

However, some of these threats are still in their infancy and may not come through as strong as expected at all.

It should be remembered that Portugal’s, and especially Lisbon’s, residential market still benefits from limited supply and stable demand which can keep many problems away. This applies to the sales market and even more so to the rental market and, hence, which adds an additional layer of safety.

If you would like to:

  • Get assistance on potential acquisitions and arising opportunities,
  • Analyse your existing assets in regard to your risk exposure,
  • Assess the impact of the above or other threats on your planned investment or
  • Evaluate your options for action in the Portuguese real estate market

just contact Real Estate Bricks to discuss a potential service proposal or get linked to respective experts.  

In case we put you in business with 3rd-party servicers we may collect a referral fee from them.

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