Sales of private homes contribute to the growth of the real estate market in2023..

Rising property values are encouraging owners to change homes without worrying about interest rates. The market is facing rising cost of living and a shortage of supply. Rising interest rates and inflation have interrupted the upward cycle of the Portuguese real estate market, but rising home values have opened the door to new buyers. Despite a decline in home sales over the past three quarters, prices have not declined, but have only slowed their upward trajectory. The latest figures from the National Statistics Institute show a 20% drop in the number of homes sold in the first three months of this year and a slowdown in price growth to 8.7%. Property owners whose properties have increased in value in recent years are taking advantage of this context and changing homes without fear of interest rates. It is this trend that is dynamiting the business of buying and selling real estate to the point where industry officials are predicting a rebound in sales in the second quarter of the year.

As Paulo Caiado, president of the Association of Professionals and Real Estate Intermediation Companies of Portugal (APEMIP) notes, the market has "a very significant number of domestic buyers whose purchase depends on the sale of their own home." This is currently "the largest part of the market". And he explains, "As a result of the fact that property has increased in value, someone who is selling a home has financial resources they never dreamed of to cope with a new purchase, and this makes financing for many of these people less important as they have equity from the sale." In these cases, rising interest rates are not a deal breaker.

In the high price segment, the growth of housing costs also does not prevent transactions. And this is another active segment of the market. According to Paulo Caiado, "properties targeting the higher segments are still in high demand, and therefore this segment has not shrunk amid rising inflation and interest rates." Patricia Baran, responsible for residential real estate at JLL, also confirms that "higher-value properties are still in huge demand".

The same cannot be said for families with many commitments. The high cost of housing, due in large part to a lack of supply, and rising interest rates are pushing the Portuguese away from the residential market. The result is an "inevitable reduction in the number of transactions", says Ricardo Sousa, CEO of Century 21. As Beatriz Rubio, CEO of Re/Max, explains, the market slowdown began at the end of the first half of 2022, when the first effects of the conflict in Ukraine, the energy crisis and the gradual rise in prices and inflation became visible.

The reduction in the effort to obtain a mortgage loan from 3% to 1.5%, which will take effect at the end of this month or early October, should encourage more transactions, admits Marco Tyrum, CEO of Keller Williams in Portugal. However, this is only one of the many variables that the country needs in order for a large proportion of Portuguese to buy a house. According to Marco Tyrum, in order for families to access credit, there needs to be "an increase in income through the country's economic growth, a reduction in the tax burden and housing policies that will address the biggest problem in the industry at the moment - the lack of supply of new properties." Ricardo Sousa even says that the Portuguese Bank's measure "is not enough. The big problem is supply and requires an exponential increase in residential properties up to 250,000 euros".

And there's no doubt in the industry that the lack of supply is keeping home prices high. Costs remain stable in light of the situation, just slowing down, says Patricia Baran. According to Marco Tyrum, all indicators point to a continued slowdown, but not a decline. "We will face more marginal overall increases," he says. With reduced purchasing power and some policy instability, this "limits the number of transactions, as has already happened in the first half of the year, and we expect to see the same in the second half." However, it remains unknown what will be the behavior of the residential real estate market in the country this year, after a record of almost 168 thousand homes sold in 2022 and a transaction value of 31.8 billion euros. Beatriz Rubio expects a "more dynamic and less anxious second half of the year, although she recognizes that these will be "guaranteed challenging months." Francisco Bacelar, vice president of the Association of Real Estate Intermediaries of Portugal, recalls that the behavior of the Portuguese will be in line with the increase in interest rates, which limits the ability to access credit, meaning "we can expect some decline" in sales. According to Ricardo Sousa, the second half of the year will be characterized by a decrease in the number of transactions, an increase in the average time to sell a property, stabilization of prices and demand for houses for rent for those who do not have the necessary conditions to obtain credit.