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Housing: Demand to Greatly Exceed Supply in 2018

18 January 2018

“The demand for housing will continue to be much higher than supply, driving a rise in prices in 2018,” the consultancy CBRE stated in its report on trends in the real estate sector.

“The growth in demand for housing should continue to be evident throughout 2018 with the domestic market gaining more weight relative to the foreign market. However, demand will continue to be much higher than supply, driving prices higher,” the document reads, adding that nearly 150,000 properties were bought and sold in 2018, close to the pre-crisis high seen in 2008.

In 2017, prices increased by 9%, with higher increases in the cost of existing homes (10%) compared to new builds (5.5%).

Lisbon: price per square meter “out of phase with the purchasing power of the Portuguese.”

“The current mismatch between supply and demand is not just restricted to the number of available units, but also includes location, house sizes and prices,” the report stated. It added that one and two-bedroom homes in Lisbon cost on average, six thousand euros/sqm, a number that is “out of phase with the purchasing power of the Portuguese.”

Prices in 2018 will continue to rise and “at a faster pace than in 2017,” the consultant forecasts.

With fewer buildings left to rehabilitate in the historic centre of Lisbon, the riverfront should become a focus, with projects expected to appear in outlying areas of the two major cities.

Rental market: a profound imbalance between supply and demand

CBRE expects bank financing to continue to rise after the volume of home loan loans increased by 45% in 2017. That rate was still less than half of the rate seen in 2007.

Regarding the rental market, the imbalance between supply and demand is also a significant factor. Given the growth in tourism, short-term leasing has become more attractive. CBRE noted, however, that the majority of properties that are allocated to short-term rentals are of a smaller size. Rents should increase by 5 and 10% this year.

Continued interest in second homes and changes to the local accommodation market

The recovery of demand for second homes has also been noticeable, with projects in the Algarve and South coast of Lisbon taking off over the last two years.

In the section of the report on hotels, CBRE forecast more moderate increases, when comparing possible increases in overnight stays and revenues to those of 2017. However, even with the entry of a number of new hotels, the supply is still expected to be exceeded by demand.

Lisbon should see an increase in overnight stays of between 5 and 7% in 2018 (versus 10% in 2017), with growth in Porto expected to range between 10 and 13% (15% in 2017).

“Supply growth will continue to lag behind the increase in demand”, with Lisbon expected to increase supply by 4%, i.e. one more percentage point than in 2017, adding more than 800 to 900 rooms, while the consultancy expects an increase of around 5% (200-300 new rooms) in Porto.

Hotel prices are expected to increase by 10%, with occupancy rates up by 2.4% in Lisbon and by 5% in Porto.

The new local accommodations law, expected for this year, is expected to slow down the appearance of new offerings, while lead some existing units to exit the market, the consultancy predicts.

Original Story: Diário Imobiliário

Translation: Richard Turner