Portugal's Real Estate Market is Now in Better Shape than Previously Estimated

According to the latest online conference hosted by the Portuguese Association of Real Estate Investors and Developers and Vida Imobiliária Magazine, Portugal's real estate sector is in much better shape to deal with the short-term effects of the coronavirus crisis.

The online teleconference “Real Estate Market and Covid-19”, which was attended by more than 1000 participants and eminent industry speakers, showed that although the current epidemic could lead to even more significant reduction in housing prices in the residential sector in the short term, the consequences will be short-term, and the market will return to normal after a maximum of 10 weeks.

Professionals have come to the conclusion that the Portuguese real estate market is still heavily dependent on tourism and on foreign investors and investments, but today it is better prepared and more modernized to meet the challenges of the digital economy.

José Carlos Botelho of Vanguard Properties, MD, commented that both developers and real estate professionals were “very different” in their actions during the great financial crisis of 2008-2014, while the Portuguese banking sector was much more careful when it came to providing mortgages. Today he sees much more stability in the market and is more confident in a positive outcome than in 2008. Botelho added that having a construction company with its sales team, and not just a third-party real estate agency, would help the developer reduce costs. The company notes that some customers have canceled their intentions to acquire real estate, while others have postponed the signing of transactions for some time. Experts are sure that this is a solvable situation.

Antonio Gil Machado, publisher of Vida Imobiliária magazine, said in a welcoming speech that the tourism boom and the fast recovery in Portugal's real estate sector since 2014 showed that there is a clear link between the vibrant tourism market and real estate projects and home sales. This was especially true for Lisbon, Porto and Faro, where average apartment prices have doubled since the crisis began, although this was less noticeable in other Portuguese cities. Machado expressed concern that the current crisis could lead to lower real estate returns.

However, the conference also noted that the real estate sector, like the whole of Portugal, is now experiencing an exceptionally unique moment, that it is important to look at the situation in the future and not be an alarmist. Players of the real estate market of Portugal noted that they are constantly in contact with foreign investors and remain optimistic about the future market, although now the situation is alarming in the short term with all the ensuing negative consequences. Conference participants agreed that by the end of the year the sector will recover.

Jose Araujo, Real Estate Director at Millennium bcp, noted that Portuguese banks were better prepared for this situation than before. Banks today are less exposed to risks and better capitalized than 10 years ago, mainly because they got rid of bad loans and toxic assets on their balance sheets. He also expressed the hope that the current crisis will last only two to three months with a rapid economic recovery.

Pedro Vicente, president of Habitat Invest, said that the situation with COVID-19 provided everyone with additional time to analyze, that his company with patience and calmness is focused on the soon recovery and on the opportunities that can now be taken advantage of. However, Vicente emphasized that although companies in this sector were better prepared than during the recent crisis, the scenario was overwhelmingly dependent on international investors, as Portuguese enterprises and banks were still under-capitalized. This could put Portugal in an extremely fragile position, as COVID-19 jeopardizes these international investments.

Ricardo Souza, CEO of Century 21 Real Estate Agency, said February was the best month in their company's history. Unfortunately, house inspections were temporarily suspended, they witnessed a slowdown in the activity of foreign buyers as the crisis began, but emphasized that transactions were mostly postponed, not canceled. This crisis, in his opinion, is temporary and well controlled, it will last 2-3 months, and the consequences for the economy will not be as significant as in 2008.

One of the most acute problems that all participants in the online conference identified was the risk of falling house prices caused by falling demand in the situation of the COVID-19 pandemic. According to a survey of participants, 2% believe that this situation will not affect prices in any way, 41% believe that the impact will be moderate, and 55% believe that the epidemic will lead to lower housing prices.

Jose Araujo of the specialized credit department of Millennium bcp said that both the Bank of Portugal and the European Central Bank have support mechanisms to help the real estate market in particular overcome the effects of the crisis.

There is no doubt that real estate and tourism markets are two fundamental foundations of the Portuguese economy, inextricably linked. But with the cancellation of flights, the closure of borders, the cancellation of tourist bookings, the situation with short-term rents looks bleak. Hotels, apart-hotels, resorts, holiday homes and local hotels with a sharp drop in the number of tourists will suffer the most. Everything related to tourism and housing investment, both nationally and internationally, has been hit hard.

One of the main calls for the government over the past 12 months is the introduction of a lower VAT rate of 6% for the construction sector, which in Portugal has been particularly affected by the coronavirus. Jose Carlos Botello believes that by lowering the VAT rate on the construction industry, developers will receive an incentive to invest in housing projects. While the lack of qualified labor and the high cost of building materials made it almost impossible for developers to invest in affordable middle-class housing and make a profit.

The Association also announced other measures, such as exemption of IMI from property tax before the end of the year, exemption of taxes from IRC until July, and streamlining of local council procedures and credit lines for companies.