Falling supply at a time when demand is rising is helping the residential property market in Portugal recover with the latest index report, from the Royal Institute of Chartered Surveyors (RICS) and Confidencial Imobiliário, showing prices are rising.

Like its neighbour in Spain, the property market in Portugal was hit hard by the global economic downturn with overseas buyers falling but now estate agents are seeing a strong rise in buyer interest and developers are also reporting rising interest for new build units.

House price growth in September was driven by a widening mismatch between rising new buyer enquiries and falling sales listings, according to the report. Similarly, landlord instructions remain in short supply and this continues to be a factor squeezing rents higher, the report, which covers Lisbon, Porto and the Algarve, also points out.

In the sales market, new buyer enquiries rose at a solid pace. Estate agents reported the fastest monthly growth in buyer enquires in two years. Meanwhile, the flow of new sales instructions coming to market fell noticeably during September as each region covered posted a decline in fresh listings.

In the coming year, respondents expect Lisbon to post the strongest house price growth nationally.