Need to adjust house sale prices to take into account purchasing power

Even in the current context of uncertainty with high interest rates on bank lending and the rising cost of living, there is still interest in buying real estate in Portugal. The issue is that there is a "big difference" between the prices of houses for sale and the values that families can actually afford, which reduces the sale of real estate in our country. This is why Ricardo Sousa, CEO of Century 21 in Portugal and Spain, decided to "adapt the offer to the purchasing power" and, as a result, "we increased the number of our transactions in the second quarter", reports idealista/news.

in an interview.

Now real estate sales are slowing down in Portugal, not only because of high house prices, but also because of''between the available supply and what they can afford'." That's why this American network decided to change its real estate attraction and sales strategy: 'It's as simple as adapting the offer to the purchasing power'. Case in point, the average transaction amount in a property intermediary in Portugal and Spain has decreased by about 20% to 140 thousand euros. And as a result, "we increased our number of transactions in the second quarter by 42% compared to the previous quarter", shares Ricardo Souza, CEO of Century 21 in Portugal and Spain, in an interview with idealista/news, which can be read here.

How are real estate sales going in Portugal?

Yes, and inevitably, in the current context, we are seeing an overall decline in the number of transactions because''That the available supply is not keeping pace with purchasing power, especially for young people. As mortgage interest rates have risen, mortgage payments have increased, as well as spending levels, so the number of affordable homes available to buy has reduced.

The expected number of transactions for 2023 and 2024, however, remains at very healthy levels and gives us the prospect of a steady market in the coming years. There might be a decline, but we will close this year with around 150 thousand transactions in Portugal. And in Spain, that number will certainly exceed 500 thousand sales.

How did you adapt your real estate intermediation strategy before the downturn in demand? "

Naturally, the number of transactions is decreasing, but that doesn't mean there is no demand. People need''housing. People want to buy and rent housing. The problem is the big difference between the supply available and what they can afford. And that's where we have to work together. At Century 21, we've lowered the average cost of the properties we sell. We reduced the average transaction value by about 20% to 140 thousand euros in the first half of the year. In other words, our goal was to find properties on the market that match the current purchasing power. As a result, we increased our number of transactions by 42% in the second quarter compared to the previous quarter. It's as simple as matching supply to buying power.

Because there are always changes in the lives of families. Divorce, work and health problems affect the rhythm of the market and cause''instability. However, funding is also available for such cases. Either way, these situations determine housing needs because they can change family structures.

When you say that you have reduced the average price of houses for sale by 20%, do you mean to say that you have turned to cheaper housing instead of houses costing, for example, 200 thousand euros? "

That's exactly right. We are doing it in all segments. We are trying to lower the offer price to bring it in line with purchasing power, which is under pressure and declining. We have tried to identify opportunities in each market segment at lower prices.

It's also very important - and I see this as a real estate consultant's responsibility,''who works with owners of existing properties - to provide a reasonable understanding of the price discovery process. Because price determination on the seller's part is very emotional.

We renegotiated the sale price of the house to bring its emotional price in line with a more reasonable sale price and to tailor the initial sale price of the properties in our portfolio as much as possible.

"We cannot consider that a Euribor rate of 4% is expensive. What we had before was not normal. "

How did family house purchases behave when Euribor rates were low? "

We can't assume that a Euribor rate of 4% is expensive. What we had before was not normal [Euribor rates below 0%]. A serious problem for many families is that they''bought a house beyond their means, with the illusion of low interest rates that were not normal. And that's the problem.

The European Central Bank, together with the Banco de Portugal and the Banco de España - among others - decided in 2018 to introduce macroprudential rules for stress tests. In Portugal, banks were obliged to calculate self-sufficiency payments by adding 3% (stress test) to interest rates on the volatile rate to simulate an interest rate hike situation of this magnitude [which has now been reduced to 1.5%]. And that rate has to be less than 50% or the loan will not be made. I think that was a good decision at the time.

Which housing is selling the most in''Portugal? New or second-hand housing?

In Portugal and Spain, both new and used housing are sold. Despite this, used housing sales are more significant because there are not enough new builds in the housing market. Therefore, second-hand housing plays a big role in both markets because there are more houses for sale and also the prices of these properties match the purchasing power of families, both Portuguese and Spanish.

The construction of new homes in Portugal is slower than required, but much faster than in Spain. This is confirmed by data on the number of new build transactions. The price level in new construction is now relatively stable and this trend is expected to continue by 2024, which''becomes an incentive for large and small builders to maintain their production capacity of new homes.

'Used housing prices are in line with the purchasing power of families, both Portuguese and Spanish'.

How are foreigners buying real estate?

Over time, the perception of foreigners in relation to the total number of transactions has been very similar in the two countries. In Portugal, foreigners account for 18% of our transactions, while in Spain they account for 19%. The discontinuation of the golden visa program in our country has caused a lot of uncertainty in the international market and will benefit Spain, which has a well-established global market.

What is the difference between housing''markets in Portugal and Spain?

The housing markets in Spain and Portugal differ significantly, and I would like to highlight one important point that is currently shaping the public and political debate: access to housing. Currently, if we analyze the Lisbon region, the proposed loan payment calculations represent more than 45% of all municipalities. And in Lisbon, this number even exceeds 60%, which is completely incomparable to the situation in Spain.

This is because in Spain, in terms of ability to buy and rent, there is no problem of access to housing of the same level as in Portugal, especially among young people. Spain is now much better prepared, positioned and resilient to overcome the current situation than in previous''crisis periods.

What are Century 21's plans for the coming years?

In Portugal, we already have more than 220 offices and 5,000 real estate consultants, and we have coverage of almost the entire territory. Our expansion plan includes the consolidation of the Northern region and the entire inland region of Portugal bordering Spain. Of course, we also have the opportunity to strengthen our presence in the Lisbon region and other markets. In any case, in Portugal we are already at an advanced stage of our expansion project.

In Spain, we are focused on consolidating our presence in the province of Barcelona, Costa Brava, Costa Dorada, the Region of Madrid, Costa del Sol, the Canary Islands and, of course, the East Coast, Valencia, Alicante and