House Prices in Portugal Set to Stay High as Supply Lags, DBRS Warns

Portugal property: why prices are likely to stay high

If you are tracking property Portugal, the latest DBRS analysis delivers a clear message: expect elevated prices to persist while supply recovery remains slow. DBRS links the persistence of high housing prices to a structural shortfall in completed homes, rising construction costs and robust demand supported in part by government-backed guarantees.

The headline numbers are hard to ignore. Eurostat shows house prices rose by 18.9% year-on-year in Q4 2025, and construction costs were up 4.7% year-on-year in February 2026, a dynamic DBRS says has restricted new completions. Transaction volumes, meanwhile, stabilised in 2025 even as affordability constraints limit some activity. For buyers, investors and lenders, that mix changes how you should evaluate deals and financing.

What this means up front

• Expect continued upward pressure on prices while completions remain low.
• Mortgage underwriting should stress-test for interest-rate shocks, given the geopolitical risk DBRS highlights.
• Loans backed by the public guarantee programme for young buyers deserve extra monitoring: DBRS flags a relatively weaker credit-risk profile for that segment.

What DBRS found: supply shortfall and price gains

DBRS’s housing credit market analysis focuses on two core forces: supply and demand. On the demand side, low unemployment, a stable macro environment and government measures to help buyers have kept loan demand resilient. On the supply side, completions have not kept pace with demand.

Key facts from DBRS’s report (as reported by LUSA and Eurostat):

• Housing prices rose by 18.9% year-on-year in Q4 2025 (Eurostat).
• Construction costs increased by 4.7% year-on-year in February 2026.
• Transaction volumes stabilised in 2025, indicating activity has not collapsed despite affordability pressures.

DBRS concludes that prices will continue to rise while the number of completed units remains structurally low and demand from residents and foreign buyers stays resilient.

Why completions lag licences

An early positive sign is the increase in the number of licensed housing units. Licensing is the first administrative step developers need before building, and growth here suggests a future uptick in supply. However, DBRS warns the lag between licences and finished units means the market will not feel relief immediately.

Practical implication: new supply is pipeline-dependent. Even if licences rise meaningfully, a combination of financing costs for developers, labour availability, and higher material prices can delay deliveries by months or years. If you are buying new-build off-plan, verify delivery timelines, developer track record and any completion guarantees.

Demand drivers: who is keeping prices high

DBRS points to several demand-side supports that keep housing market pressure intact:

• Low unemployment which sustains household incomes and mortgage eligibility.
• Government measures, notably a public guarantee programme aimed at helping younger buyers access mortgages.
• Resilient interest from non-resident buyers, who continue to see Portuguese property as an attractive option for second homes or investment.

These elements mean there is consistent demand across market segments. For investors, that translates into steady buyer pools; for owner-occupiers, it means competition remains.

Financing and credit risk: watch the guaranteed loans

One of DBRS’s most important warnings concerns mortgage risk profiles. The agency says loans with public guarantees — an important tool for enabling younger people to buy — appear to present a relatively weaker credit risk profile than loans without guarantees. That is not the same as saying those loans are unsafe, but it does raise questions about how they perform if economic conditions worsen.

Why this matters:

• Public guarantees can expand access, but they can also encourage borrowers to stretch finances to buy.
• If geopolitical tensions lead to higher market interest rates, households with limited buffers could face repayment strain.
• Lenders and investors in mortgage-backed products should monitor performance of guaranteed-loan vintages more closely.

For buyers using a public guarantee: get clear on the terms, understand what happens if interest rates rise, and include realistic stress scenarios in your affordability calculations.

Construction costs and the developer response

Construction costs are a blunt instrument that affects both supply and pricing. DBRS notes a 4.7% year-on-year rise in construction costs in February 2026, a trend that reduces developer margins and can delay projects.

Developer responses we see in the market include:

• Slowing new starts while securing financing for existing projects.
• Shifting to higher-margin central locations or upmarket schemes where buyers accept higher prices.
• Pricing new units to reflect higher input costs, which pushes up sales prices and, downstream, market-wide housing prices.

If you’re investing in new development or buying off-plan, examine developer cost contingencies, indexation clauses in contracts, and whether the developer has forward contracts for materials and labour.

Policy measures: demand-side worked faster than supply-side

DBRS highlights that demand-side measures—particularly support for younger buyers—have had a faster effect on market activity than supply-side incentives. Tax reductions for the construction sector are in place, but DBRS cautions that such measures will take time to translate into completed housing.

A few policy points to track:

• Timing gap: tax incentives reduce costs for developers but do not immediately generate completions.
• Planning and labour constraints: fiscal measures alone cannot accelerate completion if there is a shortage of crews or permitting delays.
• Distributional effects: demand-side support helps specific cohorts (e.g., young buyers) and can intensify price pressure in entry-level segments.

From a buyer perspective, that means government support may help you get a mortgage today, but it is not a short-term lever to reduce market-wide housing prices.

Risks that could flip the market

DBRS lists downside risks tied to the current geopolitical context.