Portugal's Residential Real Estate Market

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Portugal's Residential Real Estate Market

Portugal is currently experiencing a flourishing housing market with expectations of growth in the future. While we could not pinpoint 10-year projections, we managed to cite information which analyzed 5-year projections. This research revealed Portugal’s prosperous housing market which boasts rising demand and prices, with residential areas topping charts. However, an extensive search revealed that there was limited information on the various segments within the Portuguese real estate market. While we were unable to always locate precise statistics that outlined each segment, we were able to identify some real estate segments that are showing signs of growth. Future projections suggest continued growth for this market in larger cities such as Lisbon and Porto. An overview of our findings is provided below.

PORTUGAL’S REAL ESTATE MARKET

Portugal’s property market is currently doing well and expected to experience growth over time. Both prices and number of transactions are rising at a healthy rate. Standard & Poor reports the number of residential real estate sales increased by 19.4% in the first quarter of 2017, an 18.5 % increase from 2016.

A surging demand and improved economic conditions allow Portugal’s housing prices to continue rising. Property prices rose by 4.84% in a year by November 2017. Flat prices rose by 5% while Villa prices rose by 4.9%. Demand is also increasing based on a 23% increase in the total number of housing transactions from a year early. According to portugalresident.com, the prices for property in Portugal are expected to grow by 6% annually in the next five years.

In terms of housing permits, new building permits have risen by "30% since the second quarter of 2017." While this is significant, these rehabilitation permits and construction permits only account for "25% of the maximum value reached in 2006/2007."

ECB data reports that bank lending for new homes has been "healthy since 2014." In 2016, new home lending grew by 44% and was expected to increase by "35% in 2017."

The Portuguese economy expanded by 2.5% from the prior year. This year the economy is expected to improve by 2.6%, the highest growth since 2000. Portugal also grants a five-year residency permit to non-EU citizens who purchase at least 500,000 euros worth of property. After five years, these people can apply for permanent residency but are relatively unrestricted during the initial five-year period.

FUTURE MARKETS

Fitch claims that the cost of homes in Portugal will increase around 5% per year in 2018 and 2019. Larger cities such as Lisbon and Porto are expected to contain above average prices for housing. This is due to stronger labor markets and a heavy influence by corporate real estate investors seeking profit opportunities.

Improved living conditions paired with an increased domestic demand and affordability of bank loans have led to an 83% increase in the number of units sold in Lisbon. Investors are also attracted to Lisbon’s historic center for short-term rental opportunities. 2018 is expected to have another active year for the residential sector due to a strong market demand and a solid flow of residential projects like large-scale developments.

In addition to this, a growing interest has emerged in "new build and refurbishment projects in less central areas of the city." International and national buyers are seeking these specific zones for different reasons. National buyers are interested in the cheaper prices attached to these areas and international buyers "are attracted to the alternative lifestyle these zones offer." For example, the Beato area is emerging as a go-to zone for residential developers interested in startups and other alternatives businesses. Other alternative sectors such as student and senior living, co-living, and hospitals are also expected to increase demand.

RISKS

Portugal’s flourishing housing market creates a barrier while searching for potential risks. One risked related to a possible housing bubble due to the rate at which new houses are developed. Though the risk is low, the Bank of Portugal suggests that Portugal’s financial stability could be compromised by the potential for housing prices to increase past the 2017 inflation.

The Bank of Portugal acknowledges a 7.9% increase as significant but also claims this is a decrease from a crisis period between 2008 and 2013 which suggests stability. The increase in demand is justified by a low exposure to risk due to a lack of bank credit financing, making this one risk relatively unlikely.

CONCLUSION

Portugal’s housing market is currently thriving and is expected to grow in the near future. Demand for homes is rising as the cost for newly constructed home also rises. Increased interest from wealthy investors has also improved Portugal’s infrastructure and demand for residential areas like Lisbon has never been higher. Few risks could be associated with this market, but individualized scenarios could constitute further research.
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Sources