The latest Construction Cost Index for New Housing in Portugal, as of June 2024, indicates a year-on-year increase of 3.7% in construction costs. This rise is driven predominantly by a substantial 8.4% increase in labor costs, with material costs remaining relatively stable, showing only a marginal 0.1% increase. This trend suggests that the construction sector is experiencing significant pressure from labor expenses, which could impact overall project budgets and timelines for new residential developments. For investors, this could mean higher initial investment requirements and potentially narrower margins, especially if labor costs continue to rise at this pace.
On the other hand, stable material costs provide some predictability in project budgeting, which could be a positive factor for investors. Suppose labor costs can be managed effectively, perhaps through strategic project planning or negotiation. In that case, the overall cost environment might still be favorable compared to markets where labor and material costs are escalating. Moreover, the consistent rise in construction costs could also drive property values higher, potentially leading to stronger returns on investment in the long term as demand for housing continues to grow.
