Real estate evolution during 2020 in Portugal

What has happened to real estate market in Portugal during pandemic?

2020 has been a funny old year. Most of us have spent a large part of it practially under house arrest; international travel has slowed to a trickle; and no one seems to know what's happening to the economy.

So asking what's happening to house prices in Portugal right now is rather a tricky question to answer. We do have some statistics - the National Statistics Institute (INE) produces some excellent data series - but interpreting them is tricky as well.

Portugal locked down on March 19th, and opened up on May 2 - in advance of many other countries. So the economy should already be recovering - but the statistics haven't caught up yet.

For instance, Q2 was appalling for the economy as a whole, with GDP down 16.3% according to the INE's latest bulletin, after a first quarter that was only very slightly down. But the government's official forecast of an 8.5% fall in GDP this year is based on a good recovery in the second half of the year, and it's looking for 5.4% growth next year. The central bank's decision to change its forecasts from a 9.5% decline to a more optimistic 8.1% also suggests good progress is being made.

Alfredo Valente, iAD Portugal, confirms it affected the businesses: "In the very beginning of the COVID crisis, with the first confinement, the impact was brutal. For 2 or 3 months it was impossible to close a deal. With the help of the available technologies (360º tours, VR, video-conferencing) we all tried to reinvent the business to, at least, keep buyer leads alive."

House prices actually continued increasing in Q2, though the rate of growth decelerated sharply from 10.6% in the first quarter to 7.8% in the second. The deceleration was much more marked in the new build sector (up only 6%) than in resale properties (up 8.2%); some developers may have decided to take the best price they could get, in order to shore up their balance sheets.

Though the year on year rise in prices looks impressive, a rise of just 0.8% on the previous quarter suggests that most of that growth came in late 2019. And this is the first time price growth has been so weak since the end of 2016.

It's also noteworthy that the number of transactions was down nearly 22%, and that Lisbon and Norte (which contains Porto and its suburban towns) accounted for a huge proportion of sales. Algarve was particularly weak.

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What experts say and expect?

However, it's difficult to interpret these statistics. Many transactions that were reported in Q2 were probably agreed in Q1, before the lockdown. So the figures from INE don't yet show the result of getting back to, or close, to, 'normal'.

Idealista has a different index, which is based on asking prices, so that it has less time lag than the INE index. This shows prices rising by 1% in the third quarter - a further marked deceleration, but still in positive territory. (However, remember that the asking price isn't necessarily what vendors will receive, and there is no guarantee that a property advertised on the market will actually be sold.)

Idealista's regional split shows Lisbon finally running out of steam, with prices down 1.4% in the third quarter, while Norte and Algarve managed modest rises of 1.3% and 2% respectively. Lisbon appears to have suffered from two factors; first of all it's by far the most expensive place to buy, and secondly it's been affected by uncertainty about whether properties in Lisbon will still qualify for the Golden Visa scheme after the end of this year.

Alfredo Valente: "We will still need 6 to 9 months before having a substantial part of the population vaccinated and, before it happens, we do not expect major changes in the situation. Meaning we still expect a positive trend in volume but with increasing volatility in prices, that are expected to fall slightly in the coming months."

Some experts are downbeat on future prospects. Ratings agency Standard & Poors is pessimistic, expecting to see Portuguese housing prices fall by 0.6% over tis year as a whole, before increasing less than 2% in 2021. S&P doesn't think there will be substantial price appreciation till 2022-3, when it should get back to nearer 5%. However, if you're looking to buy for the long term, that might make 2020 and 2021 a good time to look around; you may be able to negotiate a better price than in a fast-moving market.

Property consultants Imovendo also suggest that the recovery is slowing down.

Reasons for prices to fluctuate

One reason is that tourist activity has really suffered from the Covid crisis. November's INE monthly bulletin showed that the tourist sector was down -59.7% (in number of guests). There have been very few foreign holidaymakers - unsurprisingly, long-haulers didn't turn up, with America and China down more than 90%, but even Spanish visits were halved and all the Spanish have to do is drive a couple of hours!

The absence of foreigners is also likely to have impacted the real estate market. Last year, non-residents accounted for 8.5% of real estate transactions, and 13.3% of the total value of property sales. Very few such sales are likely to have gone through recently and the dreadful summer season suggests that impact will continue, particularly in Algarve and Lisbon where non-residents account for 38% and 36% of sales respectively.

The Portuguese Resorts Association (APR) reports that the luxury market is really suffering. It's worth remembering that foreigners tend to buy higher-value properties than Portuguese buyers in any case.

Figures speak for themselves. But what to expect?

Looking longer term, consider the construction figures reported by INE. Building permits fell 12% year on year in Q2, with renovation permits down as much as 22%. Planning permissions are now at their lowest levels since 2014.

Here again, the worst damage is in Algarve and Lisbon (down 31% and 27% respectively). On the other hand, in Norte - more of a market for locals, despite the attractions of Porto for the AirBNB investor - applications for new family housing permits actually rose in the quarter.

And if you look outside the housing market, to the wider economy, the government's stimulus programme should help boost the economy. A high speed rail line from Porto to Lisbon is just the highest profile project of EUR 22bn to be spent on transport infrastructure, and there's another EUR 13 bn going to clean energy.

So right now, it's difficult to see where property prices are headed. The Algarve and Lisbon appear to be suffering more from the impact of covid than the rest of the country - you could practically say Portugal is becoming a two-speed market. Areas where Portuguese nationals are the main buyers may well see more stable prices - but then there's less development in these areas, and fewer transactions, and most sellers may be inclined to stay put rather than take a lower price.

Whether that makes Lisbon and the Algarve high risk, or interesting bargain opportunities, remains to be seen. And of course, a lot will depend on whether you have the smarts to track down an attractive property and negotiate yourself and advantageous deal!