Funchal notches fresh record house prices as Madeira seeks to stem the flight of housing into short-term lets

The housing market in Madeira is going through one of its most strained periods, with Funchal at its epicentre. Property portals put the average price of resale housing in the capital at around 3,000 euros per square metre in the most central areas, with year-on-year rises of close to 10%, against a backdrop of limited supply and growing demand from both foreign buyers and residential tourism.

The weight of holiday rentals

Industry sources say a significant share of the housing stock in Funchal's historic centre has been converted into short-stay tourist accommodation, drawn by the higher returns it offers compared with traditional renting. That conversion reduces the supply available to residents and pushes up purchase prices, since a large proportion of transactions are aimed directly at tourist operations.

Foreign buyers driving demand

According to property portals, buyers from the United Kingdom, Germany and the Scandinavian countries account for a growing share of purchases in Funchal and along the island's southern coast, drawn by the climate, air connectivity and Madeira's reputation as a retirement and remote-working destination. That international demand exists alongside a local market where, industry sources say, buying a first home is becoming increasingly difficult.

Scarce land and difficult terrain

The island's volcanic terrain severely limits developable land: growth is concentrated along the coastal strips and in the valleys, while the mountainous interior remains largely excluded from residential development. Local developers warn that new-build housing cannot keep pace with demand, which keeps the pressure on the existing stock.

Measures under consideration

The Regional Government of Madeira and the Câmara Municipal do Funchal are studying ways to encourage long-term residential letting, including a possible cap on new short-let licences in certain areas of the historic centre. Municipal sources acknowledge that the challenge is to reconcile tourism's weight in the island economy with the need for Madeirans to be able to go on living in their own capital.