Will House Prices in Portugal Fall?

This is the question that everyone wants an answer to in these days of uncertainty and rising prices, interest rates and inflation. It is a pertinent question yet instead of answers, this topic only raises more questions. Interest rates are rising, inflation is here to stay and the growing energy crisis will have a transversal effect on the entire economy and access to housing, for all of us and for future generations, will become increasingly difficult.

As if this scenario alone were not enough, the National Institute of Statistics (INE) released statistics last month showing that housing prices rose by 12.9% in the first quarter of 2022, compared to the same period last year, and were up by 1.3% compared to the final quarter of 2021. All of this combined with a lack of response from our leaders has many of those in the Portuguese population asking whether house prices will start to come down and if so, then when?

Desertification of urban centers by nationals has already taken place, as there fewer properties within reach for the general population in terms of price, both for rental properties and properties for sale. This is causing the middle class to take refuge in the suburbs of the main cities, as finding housing in the more central areas of the larger Portuguese cities is becoming increasingly hard, and this is something that doesn’t just apply to Lisbon and Porto.

According to several articles published in the last few weeks, which have also been supported by news released by the Portuguese Central Bank, there may be a risk of a drop and reduction in prices in the residential real estate market, following changes in financing conditions due to a rise in interest rates on mortgages and greater difficulty in accessing mortgages, as a result of the amount of down payment required to have access to credit.

There is plenty of evidence to suggest that demand for properties will remain high, and therefore a drop in the price of real estate is unlikely. Aside from the rise in interest rates and inflation, we have seen increases in construction costs, a lack of qualified labor, chronic delays in the licensing of new projects by the city councils and authorities, and evermore stringent requirements in the energy qualification of buildings. All this will only contribute to more expensive housing, and not falling prices.

With all these indicators, the rising cost of construction and the high demand for properties that has no supply to meet it, we will not see any fall in prices in the short term, at least until the end of this year and the first half of next year. We have a great demand for real estate by National and International Investors in big urban centers, because in times of inflation there is no better investment than one in stone, or in other words in real estate. There is an enormous pressure on supply of housing all over the country, and as long as this is the case, prices will not fall.

The problem is the lack of public policies for urban planning and housing. There are no tax incentives for housing construction in Portugal, just as there are no tax incentives for a rental industry like other countries in central Europe have been putting in place for decades. There is a huge amount of bureaucracy in Portugal, driven by political ideologies that cause stagnation and make it impossible for Portuguese society to evolve in the way it needs to.

The answer to a lack of low cost housing is in the hands of the governors, so that competition can start to come about, which will cause a decrease in the price of housing. Moreover, a fiscal policy in favor of investment in long-term rental housing in urban centers, so that private companies that create urban spaces can enjoy tax benefits and policies including security of tenancy agreements by acting more efficiently against those who do not abide by the rules of the game, which goes both for landlord and tenant.