Chamber member José Cabral is a property finder specialising in the Lisbon area. He is also a property writer and commentator with a monthly column in Dinheiro Vivo, Portugal’s well-known weekly economic newspaper and website.
Here he explains how Covid-19 might affect national house prices.
The second half of 2020 has begun, the first six months of which will remain in the history books for ever. So let’s talk about numbers (and the caution we must use when interpreting them), myths, and other things that have nothing to do with Portuguese real estate but still greatly affect it.
To understand what may happen to real estate in Portugal, we need, first of all, to understand what happened before.
In 2019 the number of transactions in Portugal rose 1.6% compared to 2018 (which, in turn, had grown 16.6% compared to 2017).
More detail? In the Lisbon Metropolitan Area, it grew by 0.07% and in the Porto Metropolitan Area, it decreased by 3.6% (almost the same as in the Algarve).
Conclusion? Apparent stagnation in a historically high number of transactions. And while it is true that this year, in January and February, there were more purchases and sales than in the same months of 2019, in March and April they decreased by 14.1% and 17% respectively.
But doesn’t it seem strange that during a state of emergency (lockdown in Portugal ran from March 19 to May 2), so many people still continued to view, negotiate and buy houses?
The vast majority of real estate transactions in Portugal are initiated by a promissory contract – or CPV, where the buyer pays a deposit to secure the property and a contract is signed between both parties, committing the buyer and seller to complete the property purchase at a fixed price at a fixed date in the near future.
That is to say, the vast majority of property deals are researched, negotiated and, most importantly, signed up to 30, 60, or 90 days before the final transaction takes place.
Conclusion: the bulk of CPV contracts signed in April and in the second half of March agreed prices and paid deposits before the price uncertainty generated by the pandemic became clear. (Not completing the CPV would mean losing the deposit – in most cases, between 10% to 20% of the total purchase price).
The lockdown and uncertainty in Portugal will also have severely affected the number of real estate transactions or CPVs agreed in May or June (the totals of which are not yet known). It will probably only be from now onwards (early July 2020) that we will see stronger clues as to how the market evolves in the post-confinement period.
What about prices? I suggest caution whenever you are tempted to use published information about property prices to inform your idea of the value of the house you have in mind.
It’s important to interpret the numbers correctly. Do you have any idea how much property in Portugal has appreciated, according to the National Statistics Institute, between the first quarter of 2016 and the fourth quarter of 2019?
30%. And in the center of Lisbon? 73.2%. And in Porto? 68.8%. These are extraordinary numbers.
Did you know that until the 2nd quarter of 2017, the median values / m2 of houses in Coimbra and Porto were practically the same, but that, in the last quarter of last year, values in Porto were 40% above those in Coimbra?
And do you have any clue what caused such a dramatic change in just two years?
You probably had no idea that, for example – in Lisbon – between the first and fourth quarters of 2019, the median value / m2 of houses in the parish of Parque das Nações (semi-prime central Lisbon) rose 24.8% while, in the same period, it fell 3.3% and 5.4% in the parishes of Campolide and Carnide? (also semi-prime central Lisbon).
I’m not trying to confuse you. Just reminding you that there are general numbers you read in the media that may not reflect the price reality of the house you want to sell or buy. Read, research and talk to anyone you believe may help you.
But make sure to choose well the people you talk to. Working in real estate is demanding and not everyone can avoid the conflict of interest between price reality and their best interests.
Wishful thinking #1: “prices cannot go down because demand continues to exceed supply”.
Unlike supply (which even during the state of emergency did not fall), demand is very difficult to measure. For example: although it is an interesting indicator, we cannot say that increased searches on the main Portuguese real estate web portals Idealista or Imovirtual will guarantee a greater number of offers to buy properties.
Likewise we should not assume that the recent social upheaval we saw on the news implies that half of Hong Kong’s inhabitants will buy a house in Portugal to secure a European visa.
Wishful thinking # 2: “developers are in no hurry to sell because their financial situation is solid and, as such, the values of new construction will not go down”.
What some seem to forget is that, unlike a private individual who sells the house where he lives (which he bought to live in and, unless there is a greater need, where he can always choose to stay) for a developer, a property sale is the whole point of his business operation.
Income in Portugal
How will all this Covid-19 uncertainty affect the property market in Portugal?
It is estimated that more than 800,000 Portuguese workers are currently on lay-off. Plus another 138,000 freelancers have requested support.
Forecasts point to about 500,000 workers being unemployed by the end of the year.
In total we are talking about almost 1,500,000 workers whose income in 2020 will have declined, in a country where the working population is under 5.3 million people.
If we have less money we spend less. And if we have less because there is a pandemic about which so little is known, uncertainty skyrockets. And what does uncertainty do? It makes us risk (consume) less.
If you need credit to buy the house of your dreams, remember that the same reasons that could lead to a drop in property prices will also impact the ability of banks to finance the economy.
Waiting for a price drop may mean waiting for the day when banks will no longer lend you the money you need. The banks are still lending now, with many operating moratoriums (mortgage payment holidays), which push the problem forward, and spread it over a period of 12 months, giving borrowers some time to bounce back.
About foreign investment
There is one thing that has escaped most analysis and reviews: essentially, Portugal does not just attract foreign investment because it has attractive tax programs such as the Golden Visa or Non-Habitual Resident. It is not the only European country with programs of this nature.
Portugal attracts investment because it has become a strong brand. And this took time. Expo 98, José Saramago’s Nobel Prize for Literature in the same year, Luís Figo’s football dribbles, Euro 2004, the Special One (aka Jose Mourinho), José Manuel Barroso’s time in charge in Brussels, Ronaldo, Ronaldo and Ronaldo. Siza Vieira, Souto Moura and other architects, artists such as Joana Vasconcelos and Vhils, Portugal’s textile sector, its footwear industry or its title of European football champion, have all built the brand.
These people and these moments have put Portugal on the map, and in the world news that matters a great deal. And yes, if you have a house in Portugal it is worth a few euros more because of Cristiano Ronaldo. Even if people who choose to visit or live in this country are not aware of how much he may have contributed to getting them here.
You may not have this perception, but – as a Portuguese citizen – it is very clear to me that just 20 years ago there were a lot of people in this world who wondered if our official language was Spanish, or for whom it was not clear that we are one of the oldest sovereign states of the world.
In recent years, traveling has meant hearing people from the most diverse countries fondly remember the days, weeks or months they spent in Portugal.
10 years ago Lisbon was the only Portuguese city to be recognized as a brand with added value. Today there are people in London or Paris discussing whether to spend a week in Peniche or buy a house in Óbidos (cities that even many Portuguese people have never visited).
As relevant as the country brand is, it also matters what your brand represents. In other words, the perception of others matters – even though Portugal was already a captivating country before the international press realized this.
The world wants to know increasingly more about these 92,000 km2 of land and there is no reason that will change, as long as the country shows that it can control the pandemic. And that is definitely a long term bet…
For more information see www.ahouseinlisbon.com