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Portuguese Real Estate Prices Plummeting

News Posted On: 07 January 2013

Demand for Portuguese property is reducing by the day due to continuing declines in transaction expectations, rents and residential real estate prices. The Eurozone debt crunch along with the worldwide financial crisis bears responsibility for the poor performance of the country’s real estate industry. An unemployment rate of 16.3 per cent coupled with stringent lending conditions has made it difficult to ensure a recovery anytime soon.

Confidencial Immobiliario and the RICS (Royal Institution of Chartered Surveyors) conducted a survey on the housing market in Portugal, reporting that weak demand has resulted in a decline in rents and property prices in the country. The lettings industry has been slow in Portugal, while the Algarve, Porto and Lisbon, areas covered by the index have shown weak real estate sales markets.

New-build market performing well

Prices and transactions are continually declining in Portugal’s sales market. The net balance of overall prices fell from minus sixty to minus seventy two, meaning that 72 per cent more respondents suffered falls in their property values rather than increases. According to the index, falls in prices are driven by decreasing demand. The report reveals that developers of residential property have suffered less severe declines in prices as compared to sales agents, suggesting that the newly-constructed property market is performing a tad better than the market for existing real estate assets.

The NCI (National Confidence Index), a compound measure that is based on sales expectations and price, rose from minus fifty four to minus fifty three, but is still negative overall. Initial signs of slow real estate activity were recorded in the lettings industry, which until very recently benefitted due to constraints in mortgage lending. Even transaction expectations have reduced since 2008, while rents continue to decrease, turning rental expectations more negative.

Reasons for the poor performance of Portugal’s real estate industry

Josh Miller, a senior economist with the Royal Institution of Chartered Surveyors said that the prices of residential real estate in Portugal will continually decline because the demand has never been this weak before. He added that the labour market in the country is also deteriorating and the rate of unemployment which now stands at 16.3 per cent will only worsen the situation.

The tight lending conditions have forced many homeowners to sell their homes. Portuguese nationals who have pending mortgage payments can no longer afford the money due to the financial crisis. This has seen several homeowners put their properties up for sale with a view to rent homes instead. Mr Miller revealed that Ricardo Guimaraes, a spokesman for the National Confidence Index said that a few real estate agents and analysts are pessimistic about the country’s real estate market, especially since banks are finding it hard to get rid of properties.

However, he added that there are other real estate agents who are looking at it from a more positive perspective and expecting improvements in the sales market as well as credit conditions. Nevertheless, Portugal’s chances of a full recovery seem bleak, to say the least.

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