Housing Prices Halt Rise in Lisbon’s Historic Centre

25 October 2018

Housing prices have more than doubled since 2013, when the Lisbon Historic Centre Price Index reached its nadir. The vertiginous climb finally levelled off at the end of last year and ground to a halt in the first half of 2018.

For the first time in nine consecutive semesters, housing prices in Lisbon’s historic centre increased by just 0.1% from January to June, compared to the preceding semester.

More than just a second consecutive fall in growth – in the second half of 2017, the rate fell by more than half from 14.4 % in the first half of this year – the Lisbon Historic Centre Price Index (IPCHL – Confidencial Imobiliário) revealed that the breakneck growth of the last years has run out of steam.

The index monitors residential real estate valuations in the parishes of Misericórdia, Santa Maria Maior and São Vicente in Lisbon, and is based on the required reporting of all transactions to the authorities, which are permitted to exercise their right of first refusal on any transactions that occur in Urban Rehabilitation Areas.

“The slowdown of the last two semesters has led the annual rate to fall visibly, [with a growth of] 6% in the first half of 2018, after having reached 21.1% in the previous period,” reads the newsletter produced by Confidencial Imobiliário and which Público reviewed.

According to Ricardo Guimarães, a director at the company that specialises in statistics for Portugal’s real estate sector, the reversal of the growth represents “a return to normality,” as consistent growth rates above 20% is not sustainable.

“The rate of appreciation was considerable, in part because it started from a very low base. The market is now entering a phase of consolidation,” the economist argued.

While the recovery stemmed from strong demand and investment and rehabilitation, the current retrenchment does not mean that there is no longer any demand in the historic centre or real estate to sell.

“There is significant uncertainty vis-à-vis the coming legislative changes that are taking a long time to define,” said Francisco Bacelar, president of the Portuguese Association of Real Estate Brokers (ASMIP).

The executive was referring not just to the measures aimed at the housing and rental markets that are still under discussion in the National Assembly, but also the measures targeting local accommodations that were passed during the first semester of 2018 and came into force in the last week. The parishes in the historic centre of Lisbon correspond to areas where new requests for the registration of local accommodation units have been suspended in light of the new law.

Luís Lima, the president of the Portuguese Association of Realtors and Real Estate Agents (APEMIP), explained that the sharp appreciation was due to investors acquiring properties based on their potential profitability and not their market value. “They only paid these exaggerated amounts because they hoped to monetise them as local accommodations. Those prices would not be feasible for investments in the traditional rental market,” Mr Lima argued.

The president of APEMIP noted that while the changes to the laws covering local accommodation only just came into force, they had been under consideration for a long time. The current regulatory unpredictability has been compounded recently with the tumult in the National Assembly, where the housing and rental markets are still under discussion and as coordinator of the working group suddenly left his post. “Nobody knows where this is going to end, but the problems remain,” the executive said.

The problem is not disappearing

Investors will continue to evaluate properties based on their potential profitability and not asset’s intrinsic value, says Luís Lima. And while the prices in the historic centre already seem to have reached their limit, the price increases are simply moving to other parishes. “And then we’re going to have the same problem again. The stock of available homes is falling, demand increasing, and prices are inevitably going up. It is still happening in the rest of the city. And I believe that there will also be a limit there because prices cannot go up forever,” he joked.

This perception can be confirmed once again in the statistics produced by Confidencial Imobiliário. “While prices in the parishes of the historic centre have plateaued, they are increasing significantly in other parishes. The pressure from demand falls in one area but simply moves to another,” Ricardo Guimarães explained. According to the Residential Real Estate Index (IPR), calculated by Confidencial Imobiliário for the municipality of Lisbon, the market has seen continual growth since mid-2013, intensifying at the end of 2015, resulting in year-on-year increases exceeding 20% over a period of nine consecutive quarters.

Ci calculates IPR on a quarterly basis, and in the second quarter of 2018, residential prices in Lisbon rose by 4.9% q-o-q and by 21.5% year-on-year. At present, the index is 58% above its level in 2007, the last year before the financial crisis struck.

“The growth in the number of tourist, commercial and housing projects aimed at a high-end market segment, in addition to the growth of international demand, favoured the emergence of a trend of price growth that was first felt in the historic centre and then began to spread to other parts of the city. The intensity of the growth and the price level reached in the centre also ensured that the pace of growth would level off. The trend will repeat itself in other parts of the city,” Confidencial Imobiliário’s director forecast.

Original Story: Público – Luísa Pinto

Photo: Marta Rodriguez

Translation: Richard Turner