What will be the short and long term effects of the corona virus crisis, on the property market in Portugal?

What will be the short and long term effects of the corona virus crisis, on the property market in Portugal?

Short-term effects

Based on information from Market Analytics of the CASAFARI website, 210,233 properties have been withdrawn from the national real estate market in the last 30 days. This is due in first line to the difficulty of payment of the advertisements by individuals and some real estate companies. In the same period 148,745 Properties entered, thus having a reduction in supply of more than 25%. 6,259 Properties went up in price, i.e. 30% of the Properties compared to the 16,812 Properties that went down. But in the same period 2,367 properties were sold and 1,699 more were reserved.

But these figures reflect a structural break in advertising and not a real effect on price: presumably the low cost properties were taken away because the (digital) marketing effort now needed is not worth it in this case. In contrast, higher quality properties aim to stand out in price for their longevity in value.

Medium-term effects: The dent

Throughout the year, price developments will depend on GDP: the deeper and longer the recession, the stronger the price effect. Since a recession is inevitable, this also applies to purchase prices.

In general, we expect a decrease in purchase prices in the coming months, which will probably be between 10 and 20 per cent. Rents will fall considerably less and probably only for a short period, then continue to stagnate, as was the case before the COVID-19 crisis.

Long-term effects: Recovery in sight

We believe there will be a sharp recovery in GDP in 2021, assuming that the recovery of tourism next year on new quality paradigms can bring better quality and added value tourism as was already reflected in the last two years.In the last five years alone (as the Observador reported on 12.11.19), the growth in the number of tourists in Portugal showed an upward curve, with a sustained increase in a variety of indicators, such as the number of hotel guests (from 17.3 million in 2014 to 25.2 million in 2018) or tourism revenue (from 10.4 billion in 2014 to 16.6 billion in 2018).  It is enough to say that in 2018, the share of tourism revenues represented 8.2% of GDP and reached 18.6% of global exports. In 2019 (preliminary data), the tourist accommodation sector (Hotels, Local Accommodation, Rural Tourism and Housing Tourism) registered 27.0 million guests, which generated 69.9 million overnight stays, corresponding to variations of, respectively, +7.3% and +4.1%, compared to the previous year.

We have a more differentiated export industry and less dependent on one or two markets. The National Statistics Institute advanced in January 2020 that exportations increased 4.2%, due to the two types of trade, "corresponding to a deceleration in relation to the previous month (+5.5% in December 2019)".

Conclusion: In the coming weeks and months, the market will have to be monitored very closely. There may be individual "bargains" after the freeze and a sharp drop in purchase prices, but special attention should be given to the signs of an upcoming recovery in purchase prices.

Above all we will have to prepare ourselves for the changes that will come in the future, in what matters most after this confinement to the customer. Because in a way there will be gradual changes in preferences. We won't all go right after the crisis starts at home! But more than in the past we are prepared and equipped for this, together with the experience of remote contact and curfew systems, the specific characteristics of our homes will therefore take on greater or lesser importance than in previous times. In addition to the location and equipment, these include above all the number of rooms and the presence of a large balcony, or better still, a private garden, as well as a large storage room.In this context, we believe that concepts and forms of housing such as micro-apartments and house-sharing will have to be re-examined and reviewed from a new perspective.

Text: Paulo Lopes