The Blog

Learn how rising construction costs are affecting new developments in the Algarve, from pricing and supply to buyer and investor decisions.

By LiveAlgarve on 12th December 2025 - 4 m. reading time

Throughout 2025, one of the most significant pressures on the Algarve property market has been the steady and measurable rise in construction costs. This shift is affecting new developments, pricing strategies, investment returns and even which projects move forward. For buyers, investors and developers operating in areas like Lagos and Carvoeiro, understanding these cost dynamics is essential.

Construction Costs Are Increasing Faster Than Expected

Portugal has experienced consistent cost inflation in the construction sector throughout 2025. Year-on-year increases reported during the year include:

• 3.8% increase in new-home construction costs (spring 2025)
• Costs rising again to around 3.9% mid-year
• A later spike reaching 4.8%, the highest increase since early 2023

These numbers matter: even a 4-5% annual increase translates into tens of thousands of euros added to a project budget.

And unlike in previous years, this rise is not primarily driven by materials, labour is now the dominant cost pressure.

Labour Costs Are the Main Driver

Builders throughout the Algarve are reporting the same issue: labour shortages and wage inflation.

• Construction labour costs have risen sharply, with some months showing +9% to +10% year-on-year.
• The Algarve faces an additional challenge where local demand is high, but the qualified workforce is limited, especially during tourist season.
• Developers must pay more to secure reliable workers and those costs flow directly into project pricing.

This is the single biggest reason new developments are becoming more expensive.

Materials Are a Secondary but Still Important Factor

While some material categories softened slightly (steel, certain woods), others increased notably:

• Glass, insulation, waterproofing systems, thermal solutions and finishing materials saw annual increases close to 10%.
• Energy-efficient features, now essential for A+ energy ratings, also add cost and complexity.
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How This Directly Impacts New Developments in the Algarve

A) Fewer Mid-Range Projects Breaking Ground

Rising costs make mid-range developments financially tight. Developers are less willing to take risks on projects with limited margins. This leads to:

• Project delays
• Postponed launches
• Re-evaluation of architectural plans

B) Premium and Luxury Builds Dominate New Supply

Since higher-end projects can absorb cost inflation more easily, developers are focusing on:

• Premium apartments
• High-spec villas
• Energy-efficient new builds
• Sea-view and marina-front developments

This shifts the market upward in price and reduces the affordability of new stock.

C) New-Build Prices Will Keep Climbing

Cost pressure translates directly into final sale prices. Buyers can expect:

• Higher price per m² for 2025–2026 projects
• Fewer “affordable new builds”
• Stronger competition for new units that are already underway

D) Timelines Are Getting Longer

Labour shortages, cost fluctuations, and permit bottlenecks mean:

• Longer construction periods
• Less predictable delivery dates
• Higher project risk

Developers are now building more cautiously and buyers should adjust expectations accordingly.

How This Affects Buyers and Investors in the Algarve

Resale Properties Become More Attractive

With new builds becoming more expensive, well-maintained existing homes are increasingly appealing:

• Faster delivery
• No construction risk
• Can often provide better price-per-m²

Buyers who previously preferred new builds are now open to resales because of cost certainty.

Higher Budgets Required for New Builds

Expectations must shift. A project quoted in 2023 or 2024 is no longer deliverable at the same price in 2025. For investors or families building privately, a 10–15% contingency is now essential.

Investors Must Recalculate Yields

Because entry prices are higher:

• Rental yield projections need updating
• Long-term ROI may be more conservative
• Capital appreciation depends more on location and finish than before

Quality Matters More Than Ever

With development costs increasing, buyers are more selective. Properties offering:

• Strong insulation
• High energy performance
• Durable materials
• Lower long-term maintenance

are outperforming others in both sales and rentals.

Conclusion

Rising construction costs are reshaping new development across the Algarve. To summarise, the overall trend is clear:

• Projects cost more
• Fewer mid-range builds are viable
• Premium new builds dominate supply
• Resale properties gain importance
• Investors must approach with updated expectations

For buyers and investors, you’ll need careful analysis and realistic budgeting. For developers, transparency, quality and communication are becoming essential differentiators.

Looking for new build properties in Algarve, Portugal? Get in touch with our LiveAlgarve Realty team today.