Revival of Portuguese real estate by 2025

I am sure that another challenging year lies ahead in the construction and housing sector, which means we will continue to suffer from a housing shortage in Portugal and that affordable housing is out of reach for parts of Portuguese society, both in terms of buying and renting. That’s why "Overcoming till 25" - surviving until 2025! I hear and read this in many places as a slogan for the development that is inevitably coming in 2024, according to numerous international studies and expert opinions.

Construction and real estate industry

It accounts for a significant share of added value in Portugal, making up almost 15 percent, but the industry is heavily suffering from supply shortages, rising prices, a lack of skilled workers, and high interest rates. The shortage of homes available for sale in Portugal has been identified as one of the main factors behind the explosive growth in real estate prices in the country. This is due to the fact that the supply of housing for sale is far lower than the demand, making it an even more valuable asset. Data from the National Institute of Statistics reflects this reality well: in addition to the vacant homes available in Portugal, from January to September 2022, only one household was built for every nine homes sold, and this situation has only worsened in 2023.

However, in my opinion, the peak of this development is still not on the horizon. This means that the crisis is deeper than the figures regarding the completion of construction and building permits that have been presented so far indicate. But there are solutions that just need to be implemented by those who have also been elected to make decisions in the interest of the people and not constantly postpone them to protect their own interests.

Here is an overview of five measures.

Reduce the tax burden: To stimulate investments, it is necessary to create incentives for investing in this sector as an individual, starting with both direct and indirect tax burdens, which should be reduced. Depreciation in housing construction for wear and tear, modernization, rental housing, and providing one's own housing for the rental sector with minimal taxation to lower rent and create a greater supply.
Reduce bureaucracy: Bureaucracy creates space for corruption and nepotism, and this should be one of the first things to remove from the table. Funding for climate-oriented new buildings should not require permits but should be subsidized when the bill is presented with the tax identification number of the seller and buyer.

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The digitization of model processes, such as preliminary construction requests, building permits, and repairs, should not exceed a maximum period of 6 weeks; if deadlines are violated by the construction authorities, they should be considered approved. Artificial intelligence is already capable of handling this today and should also be used for this purpose to increase efficiency in offices.

Returning to economic efficiency: This requires a certain level of realism from both politicians and the population of Portugal, but it is possible. If I calculate the "rental cost," I need the following: construction costs per square meter (around 2000 euros), land cost (around 500 euros), and a 30-year interest rate (approximately 4.5%) for refinancing. This rental cost model amounts to about 16.30 euros per square meter, which significantly exceeds the average rent for new buildings in Portugal of 14.10 euros per square meter. It does not include taxes or maintenance costs, only the credit limit without additional benefits or profits for the landlord.

Moderation in cities: In recent years, more and more municipalities and their construction authorities have used their strong positioning in interactions with investors to impose various municipal tasks on them, ranging from social housing to the construction of new schools. This cannot be the norm, but should be an exception to the rule, because here, as everywhere, the end product that everyone complains about becomes more expensive, and this does not help with the real problem of creating living spaces. In other words, if the demands are too high, investors will stop construction altogether.

More flexibility in construction law: Commercial properties and former office buildings should be able to be converted into residential real estate with minimal bureaucratic requirements for conversion, without violating structural integrity and construction regulations.

What can we do ourselves? Politics cannot solve everything; perhaps we should look at ourselves and our demands and leave the church in the village. More and more advanced equipment, larger living spaces, and not taking into account the construction costs for this, yet still not wanting to give up anything, might also be something that should slowly sink into our minds. Paulo Lopes is a versatile Portuguese citizen who obtained a master's degree in economics in Switzerland and studied law at Lusophone University in Lisbon - he is the executive director of Casaiberia in Lisbon and the Algarve.