Real estate in a "strange moment" and a larger number of houses.

Half a year has not yet passed, but the housing issue in Portugal can already be considered the central theme of 2023. The crisis has intensified with rising inflation and a sudden increase in interest rates, and the market cannot meet the demand. Real estate continues to experience dynamic days with good business opportunities, but also with uncertainty. Selling homes takes longer; however, prices remain stable for both new and used properties, and this is likely to continue as the country continues to grapple with a significant problem: a lack of supply for both buying and renting.

At the real estate exhibition in Portugal (SIL), which took place from May 4 to 7 at the FIL exhibition center, "idealista/news" analyzed the participants in the event to "assess the pulse" of the market. Currently, it is difficult to make long-term forecasts, but real estate experts believe that the market is in a "strange" moment, influenced by the current macroeconomic and geopolitical context. After overheating in recent years and a "boom" following the pandemic, they say we are moving towards a scenario of stabilization and normalization of the market. They point out that 2022 is considered a possible beginning of a new cycle.

Everyone agrees that Portugal is experiencing a crisis in the housing sector. However, according to real estate professionals, this is a structural problem, not just a cyclical one. The government program "More Housing" is far from convincing. Intermediaries believe it may not be the right way to address the issues facing the market and could, on the contrary, fuel instability and distrust among investors. Nevertheless, the real estate business is still active (and attractive), that is a fact. Despite a decrease in transactions at the national level, especially at the beginning of the year, demand remains high, and there are profitable opportunities for business. The decision-making process is becoming longer, leading to an increase in the average time it takes to sell properties, meaning the market needs more time to absorb homes. However, despite possible adjustments, housing prices should remain stable (and even rise, albeit more slowly), as supply is still insufficient. The diagnosis is clear: Portugal needs more housing.

Where is the real estate market headed?

Home buying: decrease in transactions at the beginning of the year

Despite the identified problems, the situation in Portugal is now radically different from the past. The "ghost" of the Troika and the context experienced at that time, according to intermediaries, cannot be compared to today's realities. Real estate offers greater security, and the country is less exposed to risks: low unemployment, high liquidity, and a low level of credit default, also thanks to stricter rules set by the Bank of Portugal (BdP). But where is the industry heading?

Ricardo Souza from Century 21 Portugal acknowledges that the market has "clearly" slowed down since the beginning of the fourth quarter of 2021. Like some other market participants, he points to a decrease in transactions in the first quarter of 2023 compared to last year, which, at least for now, is expected to continue. The market is "slowly absorbing homes," despite the evident dynamics in the business.

The CEO of C21, for example, explains that "the proportion of first-time homebuyers, that is, young people and families looking to buy their first home in the Lisbon and Portuguese metropolitan areas or in the Algarve, is extremely high. We are talking about a share of costs exceeding 45/50%. And we must not forget that loan terms have decreased. Consequently, as the loan term shortens, interest rates rise, and payments increase. I cannot buy the homes that are on the market."

He explains that many clients "start their search, as usual, they inquire about the possibility of getting a loan to buy a house, but they don't make a decision right away. In the following month, interest rates change, and it's no longer possible to get approval for that house because even a small change can lead to not meeting the cost requirements. This is what we are experiencing at the moment.

In the first months of this year, "the market was strange. Indeed, there was a lack of trust here. After all, we all understood where we were heading. But now the market has started to stabilize, trust has begun to stabilize, and fortunately, everything is going well now," comments Luis Nunez, CEO of Comprar Casa, adding that real estate now has a "smoother" turnover. In his view, real estate "will take an average of three, four, or five months to sell." This opinion is shared by Beatriz Rubio, CEO of Remax. She acknowledges that the beginning of the year was "more challenging, with fewer transactions and a greater shortage of products in the market." According to her, the lack of products is "exclusively due to the lack of construction over the past ten years."

“The Portuguese have less money in their pockets at the end of the month. Not only because of inflation, but also due to rising interest rates. And this, of course, reflects in having to pay more on credit at the end of the month. This leads to fewer people being able to afford to buy a home, and consequently, there are fewer transactions. In theory, in a more balanced market, this would lead to a decrease in prices, but in Portugal, this is not happening due to a housing shortage. I believe that now is the time to make decisions not only for the short term but also for the long term,” says the expert, who emphasizes the importance of taking “measures” to build new housing.

Jida Souza's perspective, the national coordinator at Decisões e Soluções, is aligned with this. She says that the most challenging aspect right now is "acquiring housing that people can afford." "If some time ago a couple could easily buy a house for a certain amount, it has become more difficult now because the criteria for loan approval have become a bit stricter. As a result, they have to choose more affordable options. This is where the difficulties arise. We had several loan processes that were pre-approved, and we have clients who had to back out of deals due to rising interest rates and increased costs, and they lost the opportunity to buy that house."

“There needs to be a match between the type of demand and the type of supply,” she emphasizes. Coldwell Banker’s head, Frederico Abecassis, confirms that the market remains active, although there is “instability during the decision-making period.” He explains that “this situation is related to the current macroeconomic context of the world and the instability caused by the government recently.” In his opinion, “prices will continue to rise, but not as quickly as last year. It is very important to have measures of stability at the political and tax levels. Our main challenge these days is to control the negative impact of government measures.”

We are dealing, therefore, with "external factors" that have led to a decrease in home purchases, according to Rui Torgal, the CEO of ERA Portugal. According to the expert, although his company has not yet felt this impact, inflation and high interest rates have disrupted the market in the country. In general, he explains, "families are increasingly forced to move to the suburbs, buying homes that are closer to what they can afford." He anticipates a "trend towards market normalization" in the near future. "If you ask me whether we will have an overheated market like in the last four to five years? Probably not. We will have a market that adapts to this instability and the changes caused by interest rates, inflation, and war," he emphasizes.

Marco Tairum, the CEO of KW Portugal, says that the first quarter has apparently confirmed a number of assumptions, including a decrease in transactions. He does not yet see the effects of the overall downturn, but he reminds us that "there were many deals that were made earlier than they should have been, at a time when people spent time within four walls with their families, living in apartments, and looking for properties of different types, at a time when such transactions were not traditionally expected." "When the pandemic pause was lifted, the market exploded again. Therefore, it was expected that there would be a correction now," he points out.

Housing prices remain stable.

When it comes to housing prices, experts have no doubts: they will remain stable. Despite possible adjustments or slight declines, the trend will continue, and even if it is less intense than in recent times.