Portugal’s Soaring Home Prices Push Buyers to Suburbs with New Tax Breaks

The Portugal National Statistics Institute (INE) has published fresh data showing that median home prices climbed sharply in early 2025, a shift that will tighten budgets for aspiring buyers and redirect demand toward outer districts and smaller towns.

Key Takeaways

• Median price up 18.7% year-on-year to €1,951/m² in Q1 2025.

• Family home transactions rose 4.0%, reaching roughly 56,500 deals in the quarter.

• Trás-os-Montes recorded a 34.3% surge, the largest among Portugal’s 26 NUTS III regions.

• Foreign purchasers pay up to a 61.7% premium versus domestic buyers in Greater Lisbon.

National Trends Take Shape

The Portugal National Statistics Institute (INE) reports that the Housing Price Index jumped 18.7% in the first quarter of 2025, accelerating from an 11.6% gain in Q4 2024. Transactions climbed from 45,214 home sales in the final quarter of last year to about 56,500 in Q1, underpinning robust demand even as prices surge. At an average completion rate of under 22,000 new units per year, construction still lags behind analysts’ estimates of needed supply, keeping pressure on costs.

Regional Highlights and Outliers

Among the 26 local sub-regions, the coastal magnets—Greater Lisbon, Algarve, Setúbal Peninsula, Metropolitan Porto and Madeira—continue to lead with the highest median values. Yet Trás-os-Montes stole the spotlight with an unprecedented 34.3% increase, driven by returning emigrants and remote workers seeking lower-cost alternatives. On the opposite end, Alto Alentejo remains the most affordable, though even here prices rose by double digits.

Drivers Behind the Surge

Several factors converge to fuel this upswing:

• Low borrowing costs: Five-year mortgage rates hovering near historic lows have unlocked buying power.

• Pent-up demand: With domestic transactions up 24.9% compared to Q1 2024, Portuguese buyers account for over 93% of activity outside luxury segments.

• Tourism and investment: Despite the end of property-linked Golden Visas, cross-border capital still represented 81% of real-estate investment in 2024, with buyers from the US, UK and Brazil chasing premium stock.

• Supply constraints: Industry figures warn that new completions cover barely half of annual demand, keeping upward pressure on costs.

Policy Toolbox in Action

In response, the Portugal Ministry of Housing and the Portugal Ministry of Finance have rolled out measures under their Construir Portugal programme and the Nova Estratégia para a Habitação:

• Expansion of public housing to 59,000 units by mid-2026, tapping vacant state properties and PRR funds.

• VAT cut to 6% on construction of homes priced ≤€648,000 or rentals under €2,300/month.

• IMT (Imposto Municipal sobre as Transmissões Onerosas de Imóveis) exemptions for buyers ≤35 years on properties up to €324,058 and partial relief up to €648,022.

• Reduced IRS on moderate rents (from 25% down to 10%) and rent tax deductions of €900 in 2025, rising to €1,000 in 2026.

• Fast-track permits via Simplex and selective rural rezoning to unlock new building plots.

What This Means for Residents

Bigger up-front costs – Even with 90% loan-to-value ratios, higher prices translate into heftier deposits. On a €300,000 flat, a 10% down-payment now equals roughly a Lisbon household’s annual income.

New commuting patterns – Buyers priced out inside the CRIL ring road are turning to Setúbal, Vila Nova de Gaia or inland pockets, trading longer travel times for lower per-square-metre rates.

Rising rents – Narrow vacancy and robust leasing demand have pushed asking rents about 5% higher year-to-date, with hotspots emerging around Porto’s metro extensions and Lisbon’s green line.

Youth support – Under-35s should explore public guarantees that cover up to 10% of the purchase price and tap into IMT waivers to reduce transaction costs.

Looking Ahead

Most market watchers anticipate single-digit price growth through 2026 as interest rates gradually drift upward and a modest wave of new projects comes online. Prospective buyers would be wise to lock in financing early, monitor emerging suburbs for value opportunities and stay alert to IHRU’s affordable-rent tenders. In a market still outpacing supply, flexibility and swift action remain the keys to navigating Portugal’s steep housing ladder.