(Bloomberg) -- Property prices in Portugal rose the most in almost two years in the third quarter on the back of foreign demand and a shortage of homes on the market.
Home prices rose 9.8% in the third quarter compared to the year prior, according to the country’s statistics institute. That’s the biggest increase since the fourth quarter of 2022. Year-over-year prices rose 7.8% in the second quarter.
Lisbon-based Square Asset Management, which oversees more than €2.5 billion ($2.6 billion) in real estate assets, has blamed rising prices on a housing shortage caused by long delays in issuing new building licenses, especially in the capital of Lisbon.
“These permit delays, which can last years, are critical because they end up increasing the final price of a home,” said Pedro Coelho, chief executive officer of Lisbon-based Square. “Lower interest rates and higher foreign demand for property is expected to keep prices up for the foreseeable future.”
The shortage of homes has coincided with rising demand from foreign buyers, including wealthy Americans, who have flocked to Portugal in recent years in search of sunny climes and a lower cost of living. Lower borrowing costs are also boosting local housing demand.
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Since 2018, the foreign population in Portugal has more than doubled and is now at a record one million people – roughly a tenth of the total population.
Growing discontent about rising housing costs prompted Portugal last year to exclude real estate investments from its golden visa scheme, a five-year program that offers residency through investment. The government has also cut back on tax incentives for new residents in a bid to cool down the housing market.
Social housing accounts for just 2% of total housing stock in Portugal — among the lowest levels in the EU.
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