What are the prospects for real estate investment in 2023 in Portugal?
The year 2023 in macroeconomic terms continued with inflation higher than that which had been recorded in the decade 2010-2020, which led to the maintenance of the increase in interest rates by the European and American central banks, in an attempt to cool the demand for goods and services and control the rise in prices.
This type of intervention by the economic authorities usually has the consequence of a downturn in consumption and investment, particularly when, in addition, we have a set of factors that cause uncertainty, such as the continuation of the war in Ukraine, energy prices, disruptions in logistics chains, emerging conflicts, governmental instabilities in some states, among others.
Thus, by maintaining the uncertainty of how long financing rates will remain at the current level or rise further, or what the consequences will be on market demand, many buyers and investors are waiting for a clarification of what the trend is for the world economy.
In the case Portuguese, in addition to the unfavourable economic context, we have recently seen legislative changes that further increase the uncertainty and discomfort of both small investors and large international promoters, who easily find alternatives in other markets.
On the one hand, final buyers have a greater difficulty in accessing credit (banks are being more demanding in approvals) as, with rising interest rates and spreads, many households no longer have the ability to buy, or have simply decided to withdraw from the market until the situation stabilizes.
To complete this context, the supply of real estate in the market fell compared to a few years ago, where the supply was around 50,000 properties (villas and apartments) in the district of Lisbon, now reduced to about 30,000, 40% fall. This results from the fact that, on the one hand, the increase in demand, particularly external, has "dried up" the market, and on the other hand, the new offers to be placed on the market are insufficient to meet demand. This lack of supply of new real estate results from several factors, such as the slow approval of new projects and the lack of urban land in areas of great demand.
We must not forget that the real estate market in Portugal, unlike that of other countries, is essentially a second-hand market, and that many of the sellers want to buy another property, so in net terms, there are not so many properties entering the market, with the exception of inheritances and some new ventures.
The fact that the country is attractive to foreigners and this attractiveness has been maintained, in particular for emigrants of "lifestyle" that is, people who want to come to live here, not necessarily to come to work in the Portuguese economy. Among these retirees or high-income people, or even cyber-nomads who work from here, but not for the Portuguese economy, there is a continued demand in areas that this public considers desirable.
And what are these zones? Essentially coastal areas, without neglecting some areas of the interior that attract a public more interested in a certain traditional bucolism, but will be a minority.
In the coastal areas, the metropolitan area of Lisbon, then extending south along the Alentejo coast, the Algarve area, the North coast, and areas such as Leiria and Coimbra.
Areas with sustained foreign demand have seen their prices rise, or not fall at all. This is not to say that there cannot be corrections of inflated values of certain developments or real estate, but in general prices have remained sustained.
It is natural that in ranges that are less interesting for international buyers there may be price drops, in particular in properties of families who may be in difficulties with the payment of the installment, but in general this has not been seen.
It is our belief that property prices will only correct when demand decreases or supply increases. The measures recently taken have not created the conditions for this to happen by creating uncertainty in the minds of many investors, and there are reports of international groups simply giving up on planned investments.
What is the outlook for an investor in this scenario?
In addition to buying some opportunity properties, which may have gone to market with some urgency to sell, the best strategy is to take a break from spinning, buying-remodeling-selling investments, and parking investment in yield real estate, in areas with potential for recovery. This makes it possible to maintain a level of profitability pending political developments and the consequences of changes to the legislative framework.
In a next article we will discuss in which areas these investments can be made.