We had finished our last article with the following statement: in tense markets like that one of our capital city, Lisbon, and the Algarve, there is not enough supply in relation to demand and the natural clientele has higher income and greater financial strength.
We estimate that a correction and adjustment of values in the order of 5 to 10% of prices in Lisbon, Porto, Braga, Coimbra and the Algarve is likely. In medium size cities our opinion follows a little the data of idealista.pt which highlights a decline that can be twice as big, because the families living there sometimes have less solid financial situations.
Can this perspective be compensated, due to the lived experience of confinement, by the recent aspiration of families to settle away from big cities and in a more comfortable living environment, less dependent on long trips on public transport? And the sudden charm of the extra office room in your home? Surely a simple interest due to the experience of lock-down will not necessarily trigger na actual purchase. This hypothesis described above only applies to those who can telework.
Banks, which have focused on assisting businesses, are now more resilient to home loans and private loans, this may become a problem for the real estate business. The increase in traffic on sites to areas further away from major cities reflects curiosity, but does not mean a predisposition to purchase.
The driving force for acquiring real estate is trust. However, this is being put to the test, with the sudden closure of the economy, the increase in unemployment, the decrease in income. Fewer volumes, fewer buyers, this could mechanically lead to a momentary drop in prices of 10 to 20% with an increase in disparities, especially geographical and between types of real estate product under construction, new and used.
The portuguese real estate market is structured as follows: 55% of purchases are necessary, 30% are investments for rent and/or pure investment and 15% in second homes. Main home buyers will have the greatest distrust at this time, because it is the most important investment of their life in their own permanent home. Investment purchases will resume in October at the latest, for tax reasons and because of the need to invest capital in real estate assets. The purchase of the second home and the holiday home may come as a surprise to the market, taking into account the experience of the last few months many had wished to have a small house outside the dense urban perimeter where they were confined. This is true for the national client as well as for the international client.
However we believe that we will have a phase of feeling the terrain both for seller and buyer, to meet the price and the needs of both, this will be reflected in the price of the property. We expect a moderate drop in prices until the end of 2020 and, above all, a severe drop in the volume of transactions due to lack of time to recover the three months in which we were forced to press the pause button, and that it will not be possible to recover in any way before 2021.
Text: Paulo Lopes