The housing market is slowing – but prices remain high

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The latest data from the National Institute of Statistics demonstrate the loss of dynamism of the residential market. According to a report by Dinheiro Vivo, in June this year there was a 7.6% drop in the number of transactions, which had not happened since February 2021. Bank assessments for home loans also fell in August for the third consecutive month. The Bank of Portugal also noted that in August, mortgage lending recorded the first slowdown in almost two years. “These are signs of some cooling in the market, on the demand side,” said Beatriz Rubio, CEO of Re/Max.

But the industry remains optimistic according to the report. Paulo Caiado, president of the Association of Real Estate Professionals and Companies of Portugal (APEMIP), believes that this year “will not be significantly different from 2021”, although he admits that “the second half of the year will be characterized by some limitation on the number of operations”.

But for the moment the sector is buoyant, over the first six months of the year, more than 87,000 homes were sold (an increase of 14% compared to the same period in 2021), for an overall value of more than 16 billion euros (31 percent more). Patrícia Barão, head of the residential area at JLL, recalls that the company’s raison d’être has not changed: “The high demand scenario remains given a limited supply”.

Lack of new construction

What worries the sector is the lack of new constructions, the market being completely dominated by the sale of second-hand houses (new houses represented only 18% of total transactions in the first half of the year). “The uncertainty lies in the impact of the economic context on the offer”, underlines Beatriz Rubio. The significant increase in construction costs, as well as interest rates, with direct consequences on housing loans, could lead developers to adjust their projects, which will affect “even more the flow of available supply”, believes Patrícia Barão.

For Paulo Caiado, the cost of quality housing in Lisbon, Porto and the Algarve will not change and new builds will face construction and material costs that must be reflected in the final sale value. The JLL boss even admits that rising prices for new construction could push prices up 5% by the end of the year. Ricardo Sousa, on the other hand, considers it possible that in this last quarter of the year and in 2023 there will be a stabilization phase, if the macroeconomic context continues.

Increase in foreign investors

Francisco Bacelar, president of the Association of Real Estate Agents of Portugal (ASMIP), also admits some adjustment in prices with the drop in demand, but recalls that the country has seen growing interest from foreigners. Brazil, the United Kingdom, France and the United States continue to give strong momentum to the market, says Patrícia Barão. “Portugal has achieved an enviable position and credibility internationally as a country in which to live and invest, and attracts customers from new countries, without a great tradition of buying a house in Portugal, as is the case of the United States, which are our number one customers today”, concluded Ricardo Sousa.

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