Assessed in June 2025, Portugal’s construction cost index for new homes climbed 3.9% year‑on‑year, driven by higher labour expenses (+7.3%) and increasing material prices (+0.9%), as reported by INE .
These figures may reshape the dynamics of the real estate market in Lagos, across the Algarve, and beyond.
What’s Behind the Surge?
Labour continues to be the main force behind rising construction costs in Portugal. In April 2025, labour costs rose by 7.3% year-on-year, according to the National Statistics Institute (INE). This is up from April’s 6.8%, and adds substantial pressure to overall build budgets – contributing nearly 3 percentage points to the 3.7% overall increase in the New Home Construction Cost Index.
The continued rise is linked to a combination of skilled worker shortages, increased demand for labour in both residential and public works, and inflationary pressure on wages. In regions like the Algarve, these effects are even more pronounced due to the seasonal and tourist-driven construction cycles, where skilled labour is often in short supply.
Material prices also contributed to the uptick, albeit to a lesser extent, rising by 0.9% year-on-year, a slight dip from 1% in April. The biggest price hikes were seen in glass and mirrors, which jumped by approximately 20%, likely driven by both energy costs and higher demand in modern construction. Sanitary ware, coating, insulation, and waterproofing materials also saw increases of around 10%
These being key components in new-build homes and renovations, both developers and homeowners will be paying more to maintain quality standards. Conversely, some materials like wood, mild steel, and galvanised sheet metal actually saw a drop of around 10%, but this was not enough to offset the wider upward trend. Source: theportugalnews.com.
National Context: Across Portugal
– Construction inflation has been building all year: +3.8% in March, with labour rising +7.1%
– These cost pressures are influencing project feasibility, budgeting and returns for real estate investors.
What This Means for Algarve and Lagos Property?
Rising Prices for New Builds & Renovations
Homebuilders and developers are likely to pass cost increases to buyers – meaning off‑plan and new‑build properties may soon be significantly more expensive than resale equivalents.
Higher Replacement & Renovation Costs
Owners considering upgrades will face steeper budgets due to pricier materials like glass, insulation, and sanitary fittings.
More Attractiveness for Resale Homes
Given the rising cost of new builds, recently renovated or turnkey resale properties may offer better value, especially when compared with the premium of new developments.
Strategic Takeaways for Buyers & Sellers
For Buyers
– Consider resale or near-complete units to avoid rising off-plan prices.
– Use locked-in pricing where possible – fixed-price contracts can protect against future cost hikes.
– Act sooner – waiting may cost more as construction inflation persists.
For Sellers
– Renovate today if you’re considering it: higher replacement costs mean renovated homes are commanding stronger premiums.
– Price expectations should reflect replacement cost calculations, not just comparable sales.
Despite rising costs, Portugal’s housing market remains strong:
Algarve apartment values surged ~19% y/o/y in April, with houses up ~11% – median prices in the Algarve reached around €2,480–2,504/m² source: Algarveprop. Market demand remains healthy, supported by tourism and foreign investment.
Rising construction costs are already reshaping the landscape for property development, pricing, and renovation in Lagos and the wider Algarve.
At B&P Real Estate, we help clients navigate these changes – identifying hidden value in resale options, and advising on timing strategies to maximise outcomes.Thinking about buying or selling an Algarve property? Get in touch with B&P Real Estate today for expert guidance tailored to today’s market challenges.
