Century 21 Dismisses the Possibility of a Real Estate Bubble in Portugal

4 March 2018

Middle and lower middle-market customers have driven the rental market, which continues to fall.

The CEO of Century 21 Portugal dismissed the possibility of a real estate bubble but admitted that there is “an excess of optimism in the market.” Ricardo Sousa added that about 60% of transactions are made using mortgage loans, financing an average of 70% of the value of the property, which, in his opinion, are typical values for a well-functioning market.

“As domestic demand is the main driver of the residential real estate market in Portugal, the disposable income of Portuguese families will act as a limit on prices. The reality at a national level is different from that of some specific zones that are heavily influenced by international demand and a concentration of supply in the medium-high and luxury segments,” Mr Sousa stated.

The company attained a total turnover of around 35 million euros last year, up 35% over the previous year. The result stems from “generalised growth throughout the country, based mainly on local demand, dominated by middle and lower-middle class Portuguese families.” Century 21 foresees continued growth this year.

“All of our indicators confirm the continuation of this trend during the first half of the year. Our principal challenge is to identify available supply, adjusted to Portuguese purchasing power and the new profile of international buyers,” says Ricardo Sousa.

It should be noted that the company carried out 10,988 real estate sales transactions, an increase of 37%, compared to approximately 8,000 in 2016. Last year, the value of the transactions increased by 20% to 712 million euros.

The average value of property sales in Portugal stood at 129,000 euros, a decrease of around 13% compared to the average cost of 148,000 euros in 2016. Last year, three-bedroom properties were the most sought-after type of home.

Demand Outstrips Supply in Rental Market

The number of rental operations fell by 18% last year, to 2,870 transactions, compared to 3,500 in 2016, “accentuating the downward trend in the rental market that has been noted for the past few years.”

Two-bedroom properties saw the highest demand, and the average monthly rent in Portugal dropped to 598 euros, a fall of 10.7% compared to the national average of 670 euros in 2016. “This indicator reveals that consumers from the middle and lower-middle segments were the principal actors in this market,” he noted.

Regarding the conclusions of a study carried out by Caritas, which indicated that young people in Portugal cannot afford to buy a home, Mr Sousa stated that he recognises that young single people and young couples face challenges in acquiring their first home. “Century 21 Portugal has been alerting the market to this situation for a number of years. There has been a notable increase in demand in this market segment, together with a demonstrable concentration of new and rehabilitated residential offering in the upper and upper-middle-class segments. We believe that the solution to this situation is largely in the hands of private operators and the opportunities created by the unmet need for low-cost housing solutions for the rental and sales market, “he stated.

“It is essential to increase the availability of affordable housing for the middle class and young people, and this can be resolved by regenerating urban public spaces to create new housing solutions in new areas of our cities. The rehabilitation of public spaces also attracts companies and services to these areas, fostering the emergence of housing solutions. It is imperative to promote alternative tourist destinations in the country, marketing the regions unique characteristics and offerings to attract funds to different areas of the country, creating new targets for international investment.”

At the same time, the executive suggested that innovative methods of financing construction be studied to attract large operators to the residential construction sector, to boost the development of new projects that are more suitable to the real financial capacities of the Portuguese.

Another critical approach is to work with owners of vacant or under-occupied land and buildings, to promote new housing solutions and to place more properties on the market.

“The market should create incentives for investors to build up large national portfolios of properties on the rental market, allowing them to minimise risk and increase economies of scale so that they can achieve their desired returns in line with rental prices that are aligned with demand.” Mr Sousa added that “last but not least, policies must be defined that ensure the balance between tourist and residential areas to protect the regions’ characteristics and guarantee housing solutions for citizens.”

Original Story: Sol.pt – Sónia Peres Pinto

Translation: Richard Turner