The year 2023 has been quite a rollercoaster ride for the real estate market in Portugal so far. Despite initial concerns about a potential bubble burst, the market has defied expectations and continued to experience rising demand and stable prices. However, recent policy changes, such as the end of the golden visa program, have introduced some uncertainty and instability, especially for the investment market.
In this blog post, I’m going to take an overall look at the Portuguese Real Estate market in the past 6 months and how it reflects on the current situation.
My name is Ana Caramujo and I’m the founder and CEO of Savvy Cat Realty.
Savvy Cat Realty is a Relocation and Investment agency, created and composed of locals, that supports expats getting settled in Portugal in a sustainable and positive way. Transparency and tailored services are our motto as we aim to be your guide on the inside, in order to get you settled in the right place for your desired lifestyle at first try ! Feel free to reach out to Savvy Cat Realty directly at firstname.lastname@example.org , we’ll be happy to assist you!
Demand Surpasses Bubble Fears
Contrary to predictions of a bursting bubble, the Portuguese real estate market has witnessed an increase in demand. Despite reports suggesting an imminent crash, prices in popular locations like Lisbon have either remained stable or even increased.
In fact, since 2017, the average annual house prices have been rising at a rate of 9.7%. In the past year alone, until September 2022, the residential price index from Confidencial Imobiliário shows a year-on-year increase of 19.4%.
Despite the price increases, the supply of housing has not kept up with demand. Data from the National Institute of Statistics (INE) reveals that between January and September of 2022, only around 14,000 new houses entered the market, representing a modest growth of 1.6% compared to the same period in 2021. Additionally, the number of building permits for residential properties also experienced a 0.7% decline compared to 2021.
Government Measures and the Golden Visa Polemic
Another major factor that contributed to a ‘rollercoaster’ effect on the market was the New Housing Measures - to address the housing crisis faced by Portuguese citizens, the Government proposed new housing measures, including the termination of the golden visa program.
This decision caused considerable uncertainty and instability in both the real estate market and the broader national economy. While the housing market for locals has not been significantly affected by these measures, the investor market has experienced setbacks, with some investors pulling out due to the proposed changes.
The Government's announcement regarding the retroactive termination of the golden visa program sparked a rush among individuals seeking to take advantage of the program's benefits before it terminated. However, many large-scale investors are holding back, due to the break of trust resulting from the Portuguese government proposal, and big funds hoping for a market crash (on the big real estate development and investment market) following the program's termination. These funds seem to have withdrawn from the real estate investment market looking for a more favorable investment landscape, likely to occur around mid-2024.
Impact on Residential Market and Mortgage Changes
While the residential market has remained somewhat the same from the past 6 months, obtaining credit and loans has become far more challenging due to stricter criteria and higher interest rates caused by the Euribor rate. The recent surge in interest rates has further exacerbated the ongoing housing crisis, which has been intensifying over the years.
The mid-end tier of the market may experience more significant effects due to variable-rate loans, potentially leading to repossessions in this segment.
According to a "Housing Accessibility in Portugal" study sponsored by Century 21, indicates a clear deterioration in housing affordability across the country between 2019 and 2022. During this period, housing prices nationwide increased by an average of 38%, while the average increase in disposable income for families in the capital districts was only 9%.
Despite predictions of a significant influx of repossessed properties leading to a market crash, the reality so far has been different. Demand remains high, resulting in the still-low number of repossessed properties being quickly bought up. Further, It is unlikely that the repossessions will be sufficient to cause a market crash. Although some slight price decrease or a slowdown may occur in the residential market, a drastic price drop is unlikely to happen.
Challenges in the Rental Investment Sector
Rental prices have also been on the rise. According to data from “Confidencial Imobiliário”, the price per square meter of rented properties has increased by an average of 35% since 2018. For example, a 100 sqm house that rented for 880€ in 2019 reached 1,190€ by the end of last year. Although Lisbon remains the most expensive area to rent a home, with prices averaging 15.8€ per sqm, Matosinhos has witnessed the highest increase in average contracted rent, with an annual growth of approximately 12% between 2019 and 2022.
Another potential side-effect resulting from the new housing measure relates to rental investments, particularly long-term rentals. Landlords find themselves unable to increase rent or terminate contracts, which will likely lead to decrease in interest from rental investors. The overall impact of these measures on the rental market remains uncertain, but there will likely be long term negative consequences, further increasing the housing crisis, and especially the rental crisis.
Caution for Buyers: Current Market Realities
It is essential for potential buyers to understand the current state of the Portuguese real estate market.
The real estate market in Portugal has undergone significant changes since 2021. During the pandemic, the market was largely driven by internal buyers as most foreigner buyers were deterred, leading to more negotiable prices as property sellers were willing to drop their prices, sometimes going as high as 30-40% price drop.
However, the current situation is vastly different. It is important to emphasize that the listings, generally, are no longer inflated by 10-20%. In fact, high-demand areas are experiencing a shortage of supply that doesn’t keep up with demand, resulting in the asking price to be the final price.
Negotiations are, of course, still possible and Savvy Cat Realty endeavors to negotiate when feasible, but keep in mind that in the current market many listed prices are simply non-negotiable.
Furthermore, there have been cases of bidding wars, where buyers are overbidding on properties (thankfully it is not a common occurrence yet).
Our Savvy advice is to not approach the real estate market with the expectation of significantly lowering the prices through negotiation. Working with a buyer agency, like Savvy Cat Realty is always a good deal as inside knowledge and expertise can save you a lot of money. With our assistance, you can benefit from the guidance and expertise of our local agents who, above all, prioritize transparency to defend the buyers best interest, providing you accurate information to ensure you make informed decisions and good deals.
In sum, what happened in the last 6 months?
Despite reports at the beginning of the year stating that Portugal could potentially be one of the first countries to have the market crash, the Portuguese real estate market has proven resilient, defying concerns of a bursting bubble.
Demand remains high, and prices have generally remained stable or even increased in some areas. However, policy changes, including the termination of the golden visa program, have introduced uncertainties and affected the international investment market by breaking investors' trust. While the residential market is expected to remain the same at least until the end of the year, challenges may arise in the rental sector, especially for tenants, as offer is unlikely to increase. Over the next 12 months, it will be interesting to see how the market adapts to the changing dynamics and whether the anticipated opportunities for investors materialize.
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