Myths, Legends and the Reality of Real Estate

I have decided, therefore, to write about the myths that overshadow housing in our country, using the imagery of mythology. Sometimes it seems that politicians, commentators, and professionals in the sector approach this serious problem as if they were talking about a world of fantasy. A world inhabited by unreal creatures, where nothing is what it seems and everyone insists on focusing on myths and fantasies instead of facing reality.

Chimera: Reading the Market Beyond the Headlines

A chimera is a mixture of different creatures, a blend of fantasy and reality, which reflects well the contrast between the "ideal market" vs. the "real market."

The real estate market in Portugal is experiencing a paradox. On one hand, the news talks about record sales, with transaction values reaching the highest point since 2009. On the other hand, those looking for a home encounter a reality of scarcity, extremely high prices, and fierce competition. Official numbers show an impressive growth in the number of transactions and sale prices, real estate agencies announce successive records...but for many families, the dream of owning a home seems increasingly distant.

I will try to demystify this scenario, separating facts from myths. I will start with what is happening in the Lisbon Metropolitan Area (AML), with special attention to Lisbon, Sintra, Cascais, and Oeiras. I will analyze, step by step, the price dynamics, and dispel the idea of a "boom" that is the same for everyone. I will dedicate some space to the impact of factors such as new credit support for young people and public investment in the housing sector. Ultimately, my goal is to separate the wheat from the chaff among the statistics and news that we are bombarded with day after day in one of the most complex housing markets in Europe.

Sphinx: The Enigma of Numbers

The Sphinx loves riddles: behind the numbers there is always a hidden face that needs to be deciphered, instead of accepting them hastily.

What Do Record Prices in Greater Lisbon Mean?

The idea that the market is always rising is not a myth, it is a statistical reality. Data shows an explosion of prices that has been accelerating year after year in Portugal and the rest of Europe. In the 1st quarter of 2025, the median price of houses in Portugal rose by 18.7% compared to the previous year, reaching €1,951/m²! This value not only represents the biggest increase in the last 5 years, but it is almost double the value from six years ago. This growth puts Portugal at the top of the European table, which is great for investors, but a challenge for Portuguese buyers.

Greater Lisbon: The Epicenter of Pressure

It is in Greater Lisbon that the pressure on prices reaches successive records, with values 66% above the national average. An analysis of the municipalities where my mediation activity is focused shows a very different scenario:

• Lisbon: The capital remains the most expensive market in the country. In 2025, average prices per square meter are around €5,200, but can reach €7,179/m², depending on the type of property, the parish, or even the neighborhood. Interestingly, the annual price increase in Lisbon (about 4.1%) is currently more moderate than in the surrounding areas, which may indicate that Lisbon is reaching a limit, constrained by stagnant demand.
• Cascais: Synonymous with quality of life and safety among foreign buyers, Cascais has prices that compete with those of the capital, around €5,375/m². The annual growth is similar to that of Lisbon (+4.1%), but the municipality stood out for a remarkable acceleration, which increased by 14.8% in the 1st quarter of 2025, a sign of increasingly intense demand. Foreign buyers, especially Americans, made a strong contribution.
• Oeiras: This municipality is experiencing a dramatic price acceleration. With a 21.4% increase in the 1st quarter of 2025, Oeiras had one of the largest increases in the country. The average price reached €4,314/m², positioning itself as a premium alternative to Lisbon, but with much more intense growth.
• Sintra: Once seen as one of the most affordable options, Sintra is undergoing a radical change. The municipality saw prices rise by a massive 20.0% in one year, with the average value reaching €3,061/m². This explosive appreciation shows the "spillover effect": price pressure in central Lisbon is pushing buyers to the outskirts, with the consequent rise in prices in these locations.

It is important to note the difference between the statistics from INE, based on actual sales, and the statistics from advertising portals (such as Idealista), which are based only on "asking prices."

For a buyer, this difference is important, although in an overheated market like ours, the margin for negotiation is small.

These data show that the "boom" story is more complex than it seems. There is no uniform growth. While the more expensive markets of Lisbon and Cascais are growing at a more moderate pace (about 4.1% per year), the neighboring municipalities of Oeiras and Sintra are heating up much faster (21.4% and 20.0%, respectively). This is because traditionally high-demand markets, like Lisbon and Cascais, are becoming too expensive, even for those with higher purchasing power, including foreign buyers. This demand is "overflowing" to the nearest periphery. Those who can no longer afford to buy in Lisbon or Cascais are turning to Oeiras, Sintra, Mafra, Loures, and the municipalities on the south bank of Lisbon, inflating prices in those areas. The legend that Sintra, Odivelas, Seixal, Almada, and Montijo are affordable locations is a "dying reality," turning these former "affordable havens" into new expensive markets and pushing middle-income families further away.

Note: The 2021 data refers to the median transaction price (SIR/Confidencial Imobiliário), while the 2025 data refers to the average listing price (Idealista). The comparison illustrates the appreciation trend, although the methodologies differ.

Harpy: The Scarcity of Supply in the Face of Intense Demand

Harpias symbolizes impiety, constant hunger, just like the insatiable search for a home in the midst of so much scarcity of properties for sale

One of the biggest myths is that high prices are solely the fault of speculators or foreign buyers. Although they play a role, the underlying problem is much more structural: a severe and chronic shortage of homes for sale. The housing stock available in Portugal has shrunk by 26% since its peak in 2020.

The Abyss between Dream and Reality in Lisbon

The situation in Lisbon is critical. The supply of properties for sale has dropped by 39% since the end of 2020, with additional declines of 8% to 10% just in the first half of 2025. This means that there are fewer and fewer homes for an increasing number of people.

The best way to see this imbalance is the "gap" between what people are looking for and what the market offers. In the district of Lisbon, this gap is 90%.

In practice, people are looking for homes around €302,931, but the average price of what they find is about €575,000.

This difference cannot be covered by negotiation margins, it is a total mismatch that makes the market inaccessible to most.

Contrary to what one might think, the demand from Portuguese nationals remains very strong. It is this internal demand, competing for an increasingly smaller number of homes, that drives prices up the most.

This scenario creates a vicious cycle. The lack of homes leads buyers to feel an urgency to buy, which generates bidding wars and drives prices even higher. On the other hand, current homeowners hesitate to sell because they know how difficult and expensive it will be to find a new home. This effect further reduces the supply.

Real estate developers, in turn, face lengthy licensing processes and high construction costs, so the new supply coming to the market is almost always for the luxury segment, not alleviating the pressure in the mid-range market. The result is a less dynamic market, where the 90% gap between demand and supply is the clearest symptom of this problem.
 

Hermes: the bearer of good news whose message turns into a double-edged sword

Hermes is the messenger, proclaiming the support package for young homebuyers, although its consequences are contradictory.

The Unexpected Effect of Credit Support

In an attempt to help, the Government launched a package of measures for young people between 18 and 35 years old. Although well-intentioned, these measures are having the opposite effect on a market already under pressure.

The result was immediate: a wave of demand from young people! The public guarantee in housing credit for young people ends on December 31, 2026, which forced the government to inject an additional €350 million, in addition to the approximately €1.2 billion planned for December 2024 and almost fully utilized.

In 2024, almost half (48.1%) of housing credit applications were made by young people up to 35 years old, an increase of 9% compared to the previous year. The measures are working and unlocking market access for those who did not have the capital for the down payment.

However, the unintended consequence could not be more disastrous. The fatal flaw behind these measures is stimulating mass demand in a market with no supply.

By injecting thousands of new buyers, now with 100% financing, into a market already lacking homes, these policies are worsening the problem.

It is the "Accessibility Paradox": measures created to help buy a house end up driving prices up, especially in the segment most sought after by young people. The mechanism is simple: with guarantees and tax exemptions, thousands of young people enter the market at the same time, competing for the same T1 and T2 or T3, mostly used, in areas where it was previously more difficult to sell used houses, many of them in need of renovation, such as Sintra, Amadora or other less valued parishes around Lisbon. With so much demand for so little supply, it is inevitable that prices will rise.

On the other hand, sellers, knowing about the support, have less incentive to negotiate. An apartment priced at €300,000 can easily go up to €320,000, canceling out the tax benefit. The young person ends up with a larger debt for the same property. Ultimately, this policy risks transferring money from future owners to current ones, without solving the problem of access to housing. And since many of these young people have low salaries, this added debt becomes even heavier, increasing their debt-to-income ratio.

But the most ironic thing is that some of these houses, sold under state support, are not serving their initial purpose.

Many young people buy these houses, not to live in them, but to invest! With the support of their parents, they renovate them to resell them at a profit or put them on the high-end rental market.

And, as some colleagues specialized in this type of transactions point out, these situations are not as few as one might think.

Titan: The Monster of Construction Costs and Taxation

A Titan or colossal creature represents the crushing weight of taxation and construction costs in the selling price of new or used houses.

Impact on the Price of New Houses

The price of a new house is not random; it reflects production costs. The New Housing Construction Cost Index (ICCHN) has been consistently rising, with annual increases between 3.1% and 3.8% in early 2025.

The Weight of Labor and Material Volatility

Currently, the main driver of rising construction costs is undoubtedly labor. This cost has had sharp annual increases, between 6.9% and 8.6%, reflecting the structural shortage of qualified workers in the construction sector.

The price of materials, on the other hand, has been more unstable. After a decrease in 2024, it rose again in 2025, but in a more contained manner (between 0.2% and 1.1%). However, there are large variations: glass and mirrors rose by 20%, while steel and wood decreased in price. This volatility makes planning new projects very difficult for developers.

The Result: A Growing Gap between New and Used

This cost structure makes new homes much more expensive. According to the INE, the average price per square meter in new housing is 50% higher than that of used housing. This "premium" means that most of the new supply is aimed at the medium-high and luxury segments, not solving the lack of housing for the lower-middle class. With a construction cost between €1,200/m2 and €1,800/m2 - to which land costs, permits, financing, and profit are added - it is understood why affordable new housing is so scarce.

This creates the "New Construction Dilemma": the most needed type of housing, medium-range and affordable, is the least profitable to build. The economic logic is clear. Production costs and land prices in the AML are so high that, for a project to be viable, the selling price must be high. It is often safer and more profitable to build a luxury condominium than several smaller and more affordable apartments. Thus, new construction, which should be the solution to the supply crisis, ends up feeding the top of the market, widening the gap in access to housing.

The Monster of Taxes: How Taxation Shapes the Final Price of Your Home

The formation of a home's price goes far beyond the law of supply and demand. There is a complex web of taxes that applies to almost every phase of the process, from buying the land to signing the deed. This tax burden has a direct and significant impact on the final value, influencing the decisions of buyers, sellers, and builders.

The Song of the Sirens: The True Impact of the PRR Public Investment

The Sirens are perfect for the metaphor of seduction and the irresistible promise of public investment as a magical solution to the housing problem in Portugal

The Recovery and Resilience Plan (PRR) brought an unprecedented public investment to the housing sector, with about 1.3 billion euros allocated to the AML. The goal is ambitious: to rehabilitate about 20,500 houses and build 4,600 new ones throughout the region.

The results are already visible on the ground. By July 2025, over 5,000 families in the AML received a house financed by the PRR. Municipalities like Oeiras are delivering new housing, such as the 64 houses in Alto da Montanha. The government has signed agreements with the main municipalities in the AML to accelerate projects and meet deadlines.

However, there is a crucial detail for those looking for a house in the free market: the target audience of this program. The vast majority (75%) of the PRR plan in the AML focuses on the rehabilitation of existing buildings, not on new construction. More importantly, these programs are intended to address families living in "unfit housing conditions" and to increase the stock of public housing at controlled costs.

This creates a mismatch between the reality enabled by the PRR and the needs of a middle-class buyer. Although it is a vital investment to solve a serious social problem, the PRR has a very limited direct impact on the housing market supply shortage. The plan was not designed to create thousands of apartments for sale at market prices.

The idea that PRR investment will "solve" the housing crisis is a myth. Its impact is very specific and will not alleviate the pressure on prices in the open market. The public perception is of a large-scale solution, but the program is focused on the most vulnerable populations, on the affordable rental market, and on the renovation of public housing. The average buyer in Sintra or Oeiras is not eligible for these supports; they compete in the free market. Rehabilitating a house does not add a new home to the available stock for purchase. The 4,600 new constructions planned for the entire AML over several years are a drop in the ocean compared to the annual sales volume, which in 2024 exceeded 140,000 transactions in Portugal.

The PRR is an essential social program, but a distraction in the context of the free market crisis. Its existence is creating false hope, delaying the more difficult but necessary reforms to encourage private construction for the middle class.

Metamorphoses: The Myth of the Foreign Investor, Who Is Really Buying?

Metamorphoses represents the myth of the "foreign monster," responsible for inflating house prices, when in reality most buyers are "ordinary humans," that is, Portuguese

One of the most common myths is that the market is dominated by wealthy foreigners who are responsible for the inflation of house sale prices. However, the most recent data tells a different story.

The Myth of Foreign Dominance

The percentage of homes purchased by individuals with fiscal residence outside of Portugal has been decreasing. In the second quarter of 2025, it reached a minimum of 4.9% of total sales, the lowest value since 2021. It was the 4th consecutive quarter of decline, indicating a clear trend.

The Strength of the National Buyer

In contrast, Portuguese families are the dominant force in the market. One of the largest real estate networks in the country reported that national buyers accounted for 77.7% of their sales in the first half of 2025, a significant increase from the 68.1% the previous year. The number of transactions made by residents in Portugal grew by 25.5%, consolidating the domestic market as the main driver of activity.

Although the overall participation of foreigners is decreasing, their profile has changed. In recent years, Americans and Brazilians have shown great interest, with Americans leading international purchases in Lisbon. However, even this interest seems to be slowing down in 2025.

Therefore, the data shows that the blame for the price crisis is not, essentially, the fault of wealthier foreign buyers. The crisis is a domestic phenomenon, driven by competition among Portuguese families for few houses and by strong labor immigration (especially Brazilians). The idea that "we can't compete with outside money" is a simple explanation, but it doesn't correspond to reality. If more than 95% of homes are being bought by other Portuguese, the problem is not external demand, but internal competition. For the buyer, this is crucial: their competition is not an anonymous foreign investor, but other Portuguese families in the same situation.

In other words, the successive measures to cancel Golden Visas, increase tax burdens, and attack local rentals have not been able to counteract price inflation or solve the housing acquisition problem.

Phoenix: A Strategy for the Buyer in a Challenging Market

The Phoenix symbolizes rebirth, restart, ascension through well-thought-out strategy, leaving behind illusions and false promises

The analysis of the real estate market in Greater Lisbon reveals a complex reality. It is not a speculative bubble created by foreigners, but a market with a structural supply crisis. This crisis is exacerbated by strong domestic demand, further stimulated by government support that was not synchronized with the market's capacity to respond. With high construction costs and a public housing response focused on social housing, there are no easy solutions in sight for those buying in the free market.

For you, as a potential buyer, it is essential to dispel myths. The idea of Sintra as always being a "cheap" alternative is disappearing. The hope that the Recovery and Resilience Plan will flood the market with homes for the middle class is unrealistic. The belief that limiting purchases by foreigners solves the problem is not supported by data. The reality is a market with a chronic shortage of homes, where competition is fierce and mostly local.

In this scenario, the savvy buyer should adopt a strategic approach:

• Solid Financial Preparation: With 100% financing being an option, what sets you apart is your financial robustness. Having a solid pre-approval for credit and, if possible, the ability to make a small down payment can make a difference.
• Redefine What "Value" Means: Value is no longer just in the lowest price, but in properties with long-term potential. Think about homes with good energy efficiency, close to future transportation lines (such as SATUO, which will connect Oeiras to Sintra), or in more peripheral areas that are still in the early stages of appreciation.
• Be Prepared to Make Compromises: The 90% mismatch between what is sought and what is found in Lisbon is a fact. Be prepared to compromise on something: location (living further away), type of property (a smaller apartment), or the condition of the property (considering a fixer-upper).
• Think Long-Term: Buying a home in the Lisbon Metropolitan Area should be seen as a very long-term investment. The era of quick profits from buying and selling homes is, for those entering the market now, a mirage. The main goal should be to ensure stable housing, not short-term financial gain.