The 29-year-old has only played one league match for his Spanish club this season, while he missed Portugal's success at Euro 2016 last summer due to a number of fitness problems.
Coentrao has insisted that he understands why Zinedine Zidane has not considered him for first-team selection this term, but the full-back is confident that he can still operate at the highest level of football.
"I'm in no condition to play for Real Madrid. I want to return to my best next season. I have a contract with Real Madrid until 2019, so if they continue to count on me, perfect - if not I'll choose my own path," Coentrao told reporters.
"Maybe returning to Portugal would help me recover the level of play I once had. We should all admit our limitations at some point in our lives and I feel that right now this club demands a level of play I'm not at. I hope to play three or four more years at the highest level, I know I can do it."
Left-back Coentrao spent the 2015-16 campaign on loan at Ligue 1 side AS Monaco.