Real estate is going through a strange time and requires more houses.

Half a year has not yet ended, but the housing issue in Portugal can already be called the main topic of2023. The crisis has intensified with the rise in inflation and sharp increase in interest rates, and the market cannot meet the demand needs.

Real estate continues to lead a dynamic life with good business opportunities, but also with uncertainty. Housing sales are taking more time, but prices remain stable - both for new and used property - and are likely to stay that way, as the country continues to grapple with a major issue: a lack of supply for both purchase and rental.

At the PortugalReal Estate Show (SIL), which took place from May 4 to 7 in FIL, Idealista/news magazine reviewed the industry actors present at the event to "check the pulse" of the market. It is difficult to make long-term predictions at the moment, but the real estate professionals we spoke to believe that the market is at a "strange" moment due to the current macroeconomic and geopolitical situation.

After the overheating of recent years and the post-pandemic "boom", we are, they say, moving towards a scenario of market stabilization and normalization. And they point out that 2022 is considered the possible start of a cycle of change.

Everyone agrees that Portugal has a housing problem. However, according to real estate professionals, it is not only a situational problem, but also a structural one. And the Mais Habitação program presented by the government is far from convincing. According to intermediaries, it is rather not the right way to address the problems faced by the market and may, on the contrary, contribute to instability and distrust on the part of investors.

However, the real estate business continues to be active (and attractive), that's for sure. Despite a decline in transactions nationally, especially early in the year, demand remains strong and there are lucrative business opportunities. The decision-making process is becoming more time-consuming, so the average real estate sale period is longer, meaning the market needs more time to absorb homes. However, despite possible adjustments, house prices should remain stable (and rise, albeit slower) because there is not enough production. The diagnosis is unambiguous: Portugal needs more housing.

Where is the real estate market going?

Buying a home: a decline in transactions at the beginning of the year

Despite the problems identified, Portugal is in a completely different situation compared to the past. "The ghost" of the Troika and the conditions we lived in at that time, according to agents, are not comparable to today. Real estate offers more security, the country is less exposed to risks: unemployment is low, there is more liquidity and loan defaults are low, also thanks to the Bank of Portugal's stricter rules. But where is the industry heading?

Ricardo Souza of Century 21 Portugal recognizes that the market has been "clearly" slowing down since the last quarter of 2021. Like some of the players tested, he points to a decline in transactions in the first quarter of 2023 compared to last year, which, at least for now, will continue. The market is "slower to absorb homes", although the business dynamics are clear. The head of C21 explains, for example, that "the labor intensity for first-time buyers, that is, young people and families who want to buy their first home in the Metropolitan area of Lisbon and Porto or in the Algarve, is huge. We are talking about a labor intensity of more than 45/50%. And let's not forget that loan times have shortened, interest rates are rising and repayments are increasing. I can't buy the houses that are on the market."

There are instances where many customers "start their search as usual, request the opportunity to get a loan to buy a house, do not make a decision right away. The next month the interest rates change, they can no longer get the opportunity approved for that home because all it takes is a slight modification and the labor requirements are not met. That's what we're living right now. It's primarily about adapting that demand."

In the first few months of this year, "the market was strange. Indeed, there was a lack of confidence here. At the end of the day, we all understood where we were going.

This view is supported by Remax's CEO, Beatriz Rubio. She admits that they started the year in "more difficult conditions, with fewer deals and a greater scarcity of product on the market". The scarcity of goods, she says, "is only due to the exceptional lack of construction in the last ten years". "The Portuguese have less money in their pockets at the end of the month. Not only because of inflation, but also because of rising interest rates. And this is of course reflected in having to pay more for a mortgage at the end of the month. This leads to fewer people being able to afford to buy a home, and therefore fewer transactions. So, in theory, in a more balanced market this would lead to lower prices, which is not happening in Portugal due to the lack of houses. I think we are at a point where decisions need to be made both in the short and long term", defends the specialist, considering it necessary to take "action" to build new housing.

The opinion of Guida Souza, national coordinator at Decisões e Soluções, goes in the same direction. She says that the most difficult thing nowadays is “finding housing that people can afford to buy”. “Whereas before a couple could easily buy a house for a certain amount of money, now it's becoming more difficult because the criteria for credit approval have also become a bit stricter. So they have to go for more affordable solutions. And the difficulty arises right here. We've had some loan processes that are already coming from the past, that have already been pre-approved, and we have clients who have to decline because as the interest rate has gone up, the degree of labor intensity has increased and they no longer have the option to buy that house.” “This will lead to an alignment between the type of demand and the type of supply,” she emphasizes.

The head of Coldwell Banker, Frederico Abecassis, confirms that the market continues to be active despite the “uncertainty in the decision-making period”. He explains that “this situation is due to the current macroeconomic environment in the world and the instability caused by the government recently”. In his opinion, “prices will continue to rise, but at a slower pace compared to last year. It would be very important that there are stability measures at the political and fiscal level. Our main problem at the moment is to control the negative impact of government measures.”

Thus, “we are dealing with exceptional factors” that have caused a decline in house purchases, according to Rui Torgala, CEO of ERA Portugal. According to the expert, although his company has not yet felt the impact, inflation and high interest rates have confused the national market. In general, he explains, “families are increasingly forced to move to the suburbs, buying homes with closer values to what they can afford.” So he predicts “a trend toward market normalization” in the near future. “If you ask me: are we going to have an overheated market like we've had for the last four or five years? Probably not. We will have a market that adapts to this instability and the changes that interest rates, inflation and war have caused”, he emphasizes.

Housing prices will remain stable

As far as house prices are concerned, the experts we spoke to have no doubt: they will remain stable. Despite possible adjustments and adjustments or even small reductions, the trend will be towards stability and growth, albeit at a much slower rate than in previous years.