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impact on house prices and demand — idealista/news

From the war in Ukraine to rising interest rates, through the unprecedented escalation of inflation, rising raw material costs and labor shortages. The economy, recovering from the effects of the pandemic, faces new challenges, in a flow of unexpected events that once again bring to light the ghost of recession, inside and outside Portugal. We are living in uncertain times, with a direct impact on different sectors, namely real estate – which so far has shown its dynamism and resilience, functioning as an important economic engine. So what are the effects of this context on prices and demand for housing in Portugal? How is the sector reacting? And what to expect from the future? To take the pulse of the market, idealista/news listened to professionals from some of the largest real estate mediation from the country.

The mediators start by making a positive balance of the first half of the year – many companies even achieved the best results ever in terms of transactions and turnover – and, despite the current turmoil, they foresee a stable growth trajectory for the remaining months, assuming, however, that it can be marked by a slight slowdown. They have no doubt that the real estate market has managed to remain active and dynamic, however, the supply is still lower than the demand, in particular due to the lack of new construction, aggravated by the crisis of materials and labor, and everything points to that there will not be a correction anytime soon. of house prices in Portugal.

The European Central Bank (ECB) estimates, in turn, that housing prices in the Eurozone countries as a whole will fall by up to 9% in the next two years, as a result of the rise in interest rates on housing loans.

Given this general wave of uncertainty, the experts heard by idealista/news recognize that it is still difficult to calculate the real effects of this new socio-economic and financial context on the sector at a national level. For now, they expect consequences, above all, with the Portuguese families most dependent on the mortgage loans – which are now facing increases in the installments of the house payable to the bank due to the increases in Euribor rates –, but of less relevance in the higher segments or target of international demand.

Real estate in Portugal: market x-ray and forecasts

Among the experts heard by idealista/news, the idea is unanimous that the real estate sector in Portugal is, despite everything, experiencing a good moment, creating job opportunities and contributing to the GDP growth. Even so, Guida Sousa, national coordinating director of Decisões e Soluções, anticipates that there may be a slowdown in market growth in the 2nd semester, due to the increase in construction costs and interest rate hike on housing credit.

However, it believes that this slowdown will be reflected mainly in the residential sector, “since the trend is for growth in the luxury and investment segment”. “The demand for luxury properties continues to grow, mainly due to the high demand from foreign clients. The investment sector will therefore maintain its growth rate, being increasingly a safe bet with guaranteed returns for investors”, he analyzes.

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An opinion shared by Margarida Oltra, regional director of Engel & Völkers Portugal. In the medium term, she says, “there could also be a slowdown in transaction volume growth as a consequence of the hardening of financing conditions and the decrease in household savings”, in view of the increase in the cost of living as a result of inflation. However, the “strong demand for real estate in Portugal, by residents and international investors, there is still no correspondence in the increase in supply, so average prices, especially in premium areas, should maintain some resistance”.

These increases “always cause some uncertainty in the market and with some families they may even lead to the postponement of the decision to buy a house, leading to a certain slowdown in the rhythm of sales in some areas of the country. We cannot, however, forget that this conjuncture tends to be assimilated over time, so it is expected that some families will restructure their family budget taking into account the new circumstances, without ever forgetting that the Housing is a basic necessity”, also defends Beatriz Rubio, CEO of Remax Portugal.

Rafael Ascenso, general director of Porta da Frente Christie’s, considers that 2022 has been “a very positive and dynamic year”, stressing that recent data show that, despite the war and the post-pandemic, real estate is the “safer and more profitable investment”. “Demand has remained strong, both from Portuguese and other nationalities, especially the North American market, in addition to those who have sought us out the most in recent years, such as Brazilians and French. We have seen the integration of complete families, as well as retirees, and more recently customers with a digital nomads”, indicates the official, showing himself to be “confident and optimistic” for the second half of 2022, believing that “the market will remain dynamic and with a lot of demand”.

“When we try map the future of the real estate market, In the short and long term, it’s understandable that the specters of the 2010 housing bubble haunt buyers, sellers, and investors. Although it is difficult to predict the future, it is worth noting that there is not much data to support that a market decline is imminent”, underlines Patrícia Santos, CEO of Zome. The official recalls that the current asset market is very different from what we saw during the great recession, since, nowadays, “the housing stock, with bank mortgages, has a market value greater than the amount owed to the bank” .

But for Luís Nunes, CEO of ComprarCasa, this new reality requires everyone to greater prudence. He does not foresee that the market will lose the growth dynamics that it has shown, even so, he has no doubts that each one must “take responsibility for their role”. “Everyone is increasingly required to think about responsible real estate and credit. It should always be an obligation, but it is a requirement in times of greater market uncertainty in the face of inflation rates like those we face today in Europe and with interest rates tending to be higher”, he says.

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“Prices will remain “warm”, either by the resistance of supply, or by the relevant increase in production/construction costs (raw materials and labor), but with some tendency to stabilize motivated by the new reality of conditions financial”, he adds.

Inflation and interest: impact on house prices and demand

A inflation skyrocketed and interest rates followed suit, even surpassing the forecasts of many experts. These increases are reflected in the real estate context, compromising, for example, the financial capacity of families to pay their expenses and, in particular, to pay the mortgage on the house to the bank – remember that the Euribor have now returned to “green”, after many years in negative territory. These increases mirror the latest guidelines from the European Central Bank (ECB), which in September decided to raise key rates again by 75 basis points to curb inflation, after having raised these rates for the first time in 11 years by 50 points in July. .

The rise in interest rates came, therefore, as a response to the rise in the inflation rate in the Euro Zone, which rose again in August – mainly fueled by the increase in energy prices -, reaching a new high of 9.1% (8.9% in July), according to data released by Eurostat. In Portugal, inflation has dropped slightly, from 9.1% in July to 8.9% in August, according to data from the National Statistics Institute (INE). This remains one of the highest values ​​recorded in the last three decades.

A inflation is messing with the wallets of families in different ways. The rise in prices has been felt mainly in the energy sector, in food and basic necessities, but also in services. And this scenario of pressure on the family income poses risks, in particular default on home loans – so much so that the Government is studying a way to deal with the rise in house payments and interest rates. Given this new context, according to experts, some Portuguese families may be unable to change the house for a better one or even keep the current one, as it is difficult to fit the successive increases in your family budget. It is recalled that Portugal has the biggest gap between house prices and wages in the OECD, with the cost of housing exceeding labor income by 47.1% in the first quarter of 2022.

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“It is expected that the rise in inflation and the increase in interest rates impact first, and most importantly, Portuguese families, given the relatively low level of salary practiced in Portugal. Disposable income has declined very considerably, which may cause many families to put off their home exchange project. Foreign demand will, in principle, be less affected at this stage, given the lower weight, on average, of bank debt in the acquisition”, defends Alfredo Valente, CEO of iad Portugal. The official also recalls that “this generalized rise in prices, including the price of money, associated with a reduced availability of labor, will certainly also contribute to the increase in the price of the new constructionalready scarce in Portugal”.

Frederico Abecassis, CEO of Coldwell Banker, shares the same opinion, and has no doubt that “rising inflation and interest rates have a direct impact on both property prices and mortgage loans”. Faced with this situation, he says, “Portuguese families have to ensure compliance with their financial commitments, looking for solutions that minimize, for example, the increase in interest rates. In this context, those who have taken out a fixed rate home loan are more protected, although they may be penalized in a situation where the market returns to normal”, he stresses.

The current scenario poses risks to the real estate market and the Portuguese economy, in the view of Marco Tairum, regional director of Keller Williams in Portugal, since “both inflation and rising interest rates will slow down the access of the Portuguese to house purchase”. “It is important to remember here that it is Portuguese families that really mess with the real estate sector because, although foreign investment remains dynamic and growing, it still has a residual weight”, emphasizes the official, adding that “this weight could increase in the short term. term and have greater relevance in some markets since the foreign investor does not typically need to resort to bank financing, he is looking for properties with specific characteristics”.

Rui Torgal, CEO of ERA Portugal, thinks that the interest rate hike to contain inflation, it will have repercussions on the real estate market, “normalizing it and helping to stabilize housing prices”. “It should also be reinforced that in the last two years there has been an increase in savings by the Portuguese as a result of the pandemic and that this situation may be favorable to face the new interest rates”, he underlines. On the other hand, and similarly to the players interviewed, he considers that this increase “will not interfere with foreign investment or the luxury market, which is booming”.