Renewed real estate market in Portugal

Portugal real estate continues to thrive

In Portugal, real estate continues to thrive despite challenges such as the conflict between Ukraine and Russia, energy turmoil and central bank rate hikes. Commercial investment exceeded the previous record, with 80% of the volume coming from international investors, and the residential real estate market reached another all-time high. The retail sector also recovered, with sales reaching pre-pandemic COVID-19 levels. Moreover, there is a structural shortage of supply in the market, driving up prices and limiting housing affordability. Forecasts for 2023 remain positive, with strengthening underlying market fundamentals in Portugal and a significant amount of liquidity available for investment.

The Portuguese economy has shown strong growth.

The Portuguese economy posted strong growth in 2022 and the first half of 2023, mainly due to the recovery of the tourism industry and an increase in services exports. However, disruptions in global supply chains, especially in the energy and food sectors due to the conflict between Ukraine and Russia, led to a slowdown in GDP growth. Nevertheless, the outlook for the next few years is gradually improving. The unemployment rate remained stable but slightly above pre-pandemic levels, with employment growth slowing and vacancies reaching an all-time high in the second quarter of 2022.

The multifamily housing sector

The fundamentals of the multifamily housing market in Portugal are strong, including affordability of homeownership and increasing international expat demand. With the increasing attractiveness of Portugal and its universities to international students (+50% in 2021 compared to 2016) and the growth of national students in mobility (+10% in 2021 compared to 2016) the student accommodation sector is also performing well with high occupancy rates.

The hotel sector

Despite a challenging pandemic period, the hotel sector has shown clear signs of recovery in 2022, with the overall positive trend continuing into 2023. Despite COVID-19-related restrictions, hotels were able to show strong activity in the first quarter of 2022. Asset quality has improved, with 5-star hotels accounting for more than 23% of total openings in 2022. There was a significant recovery in international demand, which returned to 2019 levels and accounted for about 40% of total guests. Interest from both international and domestic institutional investors has been registered, while yields have been maintained due to a shortage of existing supply unable to meet growing demand.

The residential real estate market

The residential real estate market in Portugal showed strong momentum in 2022, with high demand and low supply, leading to price increases and persisting into 2023. JLL predicts that this will be the best year ever in terms of sales volume with an expected 168,000 units sold and total sales of €30-31 billion. The market is driven by both domestic and international demand, with foreign buyers responsible for 6% of market share but 11% of sales volume. Investment from the US in Portugal has shown tremendous growth and the US is now the leading country investing in Portugal when considering Golden Visa applications. Compared to the same period in 2021, investment from the U.S. tripled.

The home buying market

The home purchase market in Portugal has become more balanced, with mortgages accounting for 50% of housing volume. Despite stricter mortgage lending conditions, the market has seen an increase in mortgage lending. However, the lack of supply and tighter availability of mortgages has led to affordability constraints for the middle class, creating an opportunity for the rental market. Prices are expected to remain high as supply is not expected to increase in the near term. JLL expects new housing projects to be launched around Lisbon and Porto, presenting a good investment opportunity due to competitive pricing.

Conclusion

In conclusion, the Portuguese real estate market has shown strong and stable growth in recent years, with demand for properties in popular areas such as Lisbon, Porto and the Algarve region remaining high. In addition, Portugal offers favorable tax treatment for foreign investors, including a "Non-Permanent Residence" program that provides tax benefits to foreign residents for up to 10 years. The JLL report shows how Portugal has become a popular tourist destination in recent years, with millions of visitors coming to the country each year. Despite the recent growth in the Portuguese real estate market, prices remain competitive compared to other European countries, making it an attractive option for investors looking for affordable housing with high growth potential.