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Not Enough Portuguese Housing to Meet Demand
2 October 2017
Erasmus students arriving in Porto this year are in for an unpleasant surprise; room prices have increased by 40%. They are victims of Portugal’s real estate boom that started in Lisbon and has since extended to the rest of the country. While the average rise in prices in Europe was 4.5%, in Portugal it reached 8% in the last quarter.
The rising cost of housing since 2013 has ceased to be restricted to Lisbon, the European city of the moment, and is spreading throughout the country like a stain. The situation worries some and but not others. As international agencies begin to register concern, the real estate sector points out that, apart from Lisbon and Porto, residential housing prices continue below pre-crisis times.
There have been four years of continuous increases, although never with as much aggressiveness as that 8 % between April and June, according to the National Institute of Statistics. “The eye of the hurricane is in Lisbon”, explains Ricardo Guimarães, director of Confidencial Imobiliário (CI); “But their tailcoats are beginning to pull along the rest of the country.”
Prices have risen in the 278 of the 293 municipalities of mainland Portugal. The opposite occurred just two years ago: prices fell in 236 districts compared to the previous year, according to CI.
“Real estate appreciation in Lisbon is 24.3% this year, in neighbouring Oeiras 13.6%, in Cascais 18.3%, in the Algarve capital, Faro, 26.7%, but” CI’s director advised,” except for Lisbon, prices in the rest of the country have not yet reached pre-crisis levels.”
Unlike other countries, the growth that the sector is experiencing in Portugal is not new construction but for renovations. Just 14% of the homes sold this year are new, and that is the highest number since 2013. This year, a total of 280,000 homes will be sold, compared to 178,850 in 2013. “But the market will not re-visit the number of transactions of the previous decade because the real estate stock is inferior to the past and because the financial sector is much more conservative in the concession of loans”, explains Luís Lima, president of APEMIP, the national association of real estate agents.
The banking sector, which continues to suffer from aftershocks related to Espírito Santo, Novo Banco and Caixa Geral, is still shying away from extending business loans but has jumped back into housing, with mortgages quintupling over three years.
None of the real estate agencies see a bubble in the current dynamism, at least not like the one of the last decade, mainly because credit is not so easy to obtain as it once was. Most of the buying in Lisbon (half the Portuguese market) is in cash and foreigners are arriving in waves. First, they were Chinese and Brazilians, then the French, then the Scandinavians and, lastly, the Turks. Portugal has become a refuge. “There is no bubble because the domestic market does not present an irrational price dynamic; the risk may be for investment, but not for residency,” says Guimarães.
Owners’ opinions differ. “We are in a bubble,” Luis Menezes Leitão maintains, “only intermediaries deny it; another thing is that [the bubble] will burst “. The president of the Lisbon Association of Owners (ALP) points to the causes of the bubble: the new estate tax, the extension in the freezing of rents, the granting of golden visas for buying flats worth over half a million euros, tourism and spending by foreign retirees. “If these last incentives are maintained, the bubble should keep from bursting for one or two years. In any case, the big disadvantage is in the rental market. With the increase in taxes and freezing rents, owners prefer to sell.”
“There isn’t a bubble, there are several bubbles,” says Lima. “In the centre of Lisbon, Porto and Algarve, prices are above market due to lack of supply, causing an increase in the price of the square meter and affecting the immediate surroundings. But we survived asset devaluations in the past, and we will survive any speculative increases now.”
The consultancy PHMS predicts that by 2022, prices will rise annually by 5% on average nationally. “The shortage of supply for purchase and rental is one of the main factors in raising prices,” according to the Portuguese Housing Market Survey.
IMF, EC and ECB wary of price increases
International organisations agree, there is no bubble, but they are wary of the rising cost of housing in Europe. The IMF, EC and ECB warn that there is no reason to panic. However, they will monitor the situation to prevent any loss of recent advances, especially in countries such as Spain and Portugal.
In December, the IMF reported: “Between 2007 and 2008 real estate prices collapsed, marking the beginning of the crisis. Now, the IMF housing price index shows that we are almost back to pre-crisis prices. Is it time to worry again? ” That report covered 60 countries, and Portugal ranked 15th regarding price increases.
This quarter, Portugal has already reached fourth place in Europe due to price increases (7.9%), behind the Czech Republic (12.8%), Lithuania (10.2%) and Latvia (10.1%).
The ECB is also concerned with price increases, especially in European capitals, “led mainly by foreign investors.” Although it does not cite Lisbon, it is certainly one of the clearest examples of the worry, as it has already reached pre-crisis prices while the wages of local workers have not. Tourism and foreign investment are triggering price increases. In its report this week, the European Council on Systemic Risk (ESRB) also warns of rising prices in Europe.
These official bodies recognise that the mortgage credit facilities that existed in 2000 do not exist today, but that the phenomenon is now linked, as in the case of Portugal, to the scarce housing supply and the low profitability of banking products.
Original Story: El País – Javier Martín del Barrio
Photo: Getty
Translation: Richard Turner