What awaits mediation in 2023: without false optimism and panic

Between euphoria and depression. The year 2022 proved to be a bipolar, even schizophrenic year, marked by many challenges in the global economy and real estate in Portugal.

There was active business, momentum and growth, but at the same time there was uncertainty due to the coup that led to war in Ukraine, amidst a post-pandemic situation. Inflation has risen, interest rates have started to rise, the purchasing power of families and savings has been reduced, but Portugal is still an attractive investment destination. What to expect from 2023? Edition idealista/news listened to the opinions of several real estate professionals to anticipate trends and point out the challenges and opportunities for the year to come, which is expected to be full of surprises.

Real estate successfully copes with crises

and experts believe the industry's resilience will continue into next year. After a dynamic 2022, in some cases breaking records for residential real estate sales and transactions, 2023 is expected to be challenging but also promising for growth. Portuguese households will not find it easier to buy homes, although a correction and adaptation is expected, which will nevertheless be heterogeneous, as the problem of supply-demand disequilibrium remains serious and unresolved.

Specialists foresee a natural decrease or postponement of home purchase intentions, especially for those who depend on bank financing, which is expected to be stricter and more demanding. Without incomes corresponding to the values applied in major cities, some buyers will be forced to adapt to circumstances and turn their attention to the suburbs, as well as some areas of the interior of the country. Foreign investment is likely to remain stable and reliable, with some nationalities including Americans.

Without false optimism, but also without panic, mediators make an assessment of this year's performance and anticipate trends for 2023.

The 2022 balance sheet: dynamic but "contradictory"

In 2022, the market remained dynamic and was marked by an increase in real estate transactions, "which confirms the resilience of the industry, even in a situation of uncertainty and the many challenges we are facing now," says Patricia Santos, CEO of Zome. According to the executive, real estate continues to attract great investments and represents a safe investment option, as "it is one of the most profitable ways to invest."

Rui Torgal, CEO of ERA Portugal, also notes 2022 as "a very positive year for the real estate market, characterized by demand significantly exceeding supply, despite the increase in interest rates and inflation". Luis Nunes, CEO of ComprarCasa, shares this opinion. "We are facing record inflation over the last 30 years and EURIBOR rates over the last 15 years. Despite this, 2022 will end with very interesting numbers in the real estate market. We are seeing a slowdown in the market, but it is positive," he says. Interest rates and inflation are indeed one of the "hot topics" of the year, directly affecting activities as well as household budgets. Beatriz Rubio, CEO of Remax, calls them "unexpected difficulties that have affected the market", to which must be added "the fabulous spectrum of the European economic crisis in 2023". Indeed, inflation and interest rates have risen sharply in 2022, exceeding the predictions of many experts. And the rise is not expected to stop. The European Central Bank (ECB) re-announced a 50-point interest rate hike late last week and said it intends to continue raising rates "substantially" next year to ensure that inflation returns to its 2% target in a "timely" manner over the medium term.

This is a scenario that limits the financial capacity of families to meet their expenses and mortgage payments. However, in the December 2022 Economic Bulletin, the Bank of Portugal (BdP) indicates that the effort to pay for housing will stabilize for those with lower salaries.

"The instrument by which central banks can influence inflation is the interest rate. Raising the interest rate and thus limiting the increase in available money in circulation should cause prices to fall or rise slowly. However, borrowing money becomes more expensive, so people have less money. This measure has an overwhelming effect on the economy," comments Frederico Abecassis, CEO of Coldwell Banker Portugal. According to the executive, from 2022, "some retreat" has already started in some geographical areas in clients more dependent on financing. On the other hand, he says that the increase in interest rates does not affect the international market, "which remains faithful to investing in Portugal".

“The search for real estate in city centers by investors or clients with higher capabilities has been constant; however, middle-class families are looking more towards the suburbs of Lisbon, Porto, and Coimbra, and there is also a growing demand for areas in the interior of the country,” confirms Gida Souza, national coordinator of Decisions and Solutions. Ricardo Souza, CEO of Century 21 Portugal, adds that despite the “softening that is beginning to be observed this year, it is expected that the number of homes sold in Portugal in 2022 will increase by at least 5% compared to 2021, and the overall volume of transactions should increase even more, considering the rise in the average price of sold properties.” Regarding sales and transactions, Juan-Galo Masia, president of Engel & Völkers Spain, Portugal, and Andorra, notes the “strong demand from foreign clients,” which, according to him, “has contributed to the continuous rise in real estate prices in Portugal over the past five years.”

This opinion is shared by Rafael Assenso, the CEO of Porta da Frente Christie's. The leader notes that Portugal, due to its unique characteristics, is capable of "attracting more and more foreign investors and maintaining a growth trend unlike other markets, such as the American and Swedish." "In fact, foreign buyers see many attractive aspects for investment and living in the country. The quality of life, mild climate, ease of integration, safety, and the cost of living, which remains one of the lowest in Europe," he emphasizes. For Alfredo Valente, the CEO of iad Portugal, 2022 is difficult to describe. "We can say that our business is doing well, but it is impossible to overlook everything that is happening around us," he says. "To heal the wounds of the pandemic, we are facing a war in Europe, a crisis in the supply of raw materials, which has become scarcer and more expensive. And in the second half of this year, the strong impact of inflation and the corresponding increase in interest rates in an attempt to control it have made life very difficult for the Portuguese. Thus, it is a challenging year," he explains.

What to expect from real estate in 2023

Housing prices: stabilization and correction

Housing prices in Portugal continued to rise in 2022. Fresh data from idealista shows that in November, properties listed for sale increased in price by 1.9% compared to the previous month, averaging 2460 euros per square meter. The increase in housing prices was noticeable across almost all of Portugal, as prices rose in 17 district capitals. Considering the quarterly and annual dynamics, housing prices in Portugal increased by 2.8% and 5.9%, respectively.

But besides the lack of supply amid high demand, there are other reasons explaining the imbalance in the housing market in Portugal, which drives up property prices. These include stable employment—unemployment is at its lowest level in the last decade—significant family savings, the availability of mortgage loans from banks, foreign investments, and the rising costs of construction, which have increased again due to the war.

Due to the increase in mortgage interest rates and the decrease in purchasing power caused by high inflation, the demand for housing may weaken, leading to a slowdown in the real estate market. According to n