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Writer's pictureComunicadores/Associados

If real estate prices continue to rise...

In recent days, multiple news, based on data from INE (Instituto Nacional de Estatística), report a year-on-year rise in house prices throughout most of the national territory in recent months.


The Porto and Lisbon areas continue to reach maximum values for the square meter.

The pressure felt has, according to several specialists, as reported in Expresso, mainly based on the lack of supply.


This news also mentions that the possible increase in interest rates (which we talked about earlier) and the evolution of bank credit conditions may alleviate the pressure at this level.


The news lead reads:



But last week's news also mentioned that the European Central Bank is not expected to raise rates just yet.

One of the causes of this wait will be the fear of generating consequences, like those that happened in the past, for example in 2011, of triggering a recession.

Even though the central banks of the USA and England have already started reversing their rates, putting them on an upward trajectory.


If, on the one hand, pressures related to sales are on the rise, the values of construction costs (with an increase on the side of labor and construction materials) exert pressure towards an increase in costs.

Experts are pointing to a correction throughout the year, but won't this correction be generated by the demand side this time?


In other words, with the limitations imposed on access to credit, and the potential for interest rates to rise, there will be no pressure generated by both supply and demand, but in opposite directions.

And if so, what will the market look like?

Do prices stagnate or fall, at least in some segments of the market, such as those aimed at the middle class (or what is left of it)?


Certainly, higher-priced and higher-quality solutions will continue to be in demand, namely with a progressive (hopefully) reopening of countries.

And the stock in this segment has always been "abundant". Responding to the existing "appetite".

Luxury and high-end real estate, or for investors, has always had a constant supply, especially in certain areas, as there is either access to credit or investment capacity (by customers).


But what about the rest of the supply, or rather, the demand?

There are already some suggestions from some quarters that "throw to the State" the need to create an accessible "offer" for the middle class.

But wouldn't that be the function of the promoters of the "offer"?

Or will we go back to the times of state-funded buildings to fill the lack of interest on the part of the private sector in these market segments (even though there are many vacant public properties)?


It would not be the most "uplifting" solution for the real estate market. Where despite the large sales figures, these continue to be based on the supply used (more than 80%, according to APEMIP) in 2021.

And who consumes the largest share of this supply?

Will it be the middle class?! Or does recovery and rehabilitation continue for other uses and audiences?


Since there is a considerable volume of houses in a state of disrepair and abandonment in these cities, the lack of supply or interest in remodeling (or incentives from the municipalities), much of this "supply" could be available to the market without necessarily having to have other alternatives available for this purpose (such as land available for construction).

But this would be another topic.


And the other factors that have affected the dynamics in terms of supply development:

  • licensing speed

  • cost and availability of labor

  • cost of materials and raw materials (also due to disruptions in supply chains)


With the most recent information regarding labor and material costs, we will be witnessing a correction in the associated values, or at least a break in the acceleration of the associated factors.


There have been slight declines in the last two months for these two factors by a few percentage points.

It demonstrates a relief in the formation of future prices, but this trend will have to be maintained for a longer time.

As well as the projects developed and that were influenced by these circumstances, they will, eventually, maintain the values influenced by the higher costs.

The investor will certainly not assume this loss, of course. Except if the market enters a fall motivated by any of the mentioned factors.


Thus, and despite the fact that some companies linked to investment and real estate investors remain optimistic, namely associated with the flow of their international customers, the market still maintains some suspense in terms of its evolution.


New rules from Banco de Portugal, which cools down the momentum for acquisitions; lengthy licenses (which were already present before the pandemic, and in the meantime have worsened); increased construction costs; among the factors influencing prices.


And they will probably continue to influence prices, which tend to maintain an upward trajectory in the expectation of being supported by sales from customers with purchasing power or with the argument of scarcity of supply.


This impetus could be stopped if there is a need for interest rate hikes by the central bank, making access to credit difficult for both customers and investors, as the implicit values will necessarily rise for these loans.

This may require changes, or reorientations, of investments. And eventually to a change in the paradigm of the purchase of used products, and who knows, an increase in the demand for renting.

Or even an entry into this real estate market that, in another context, would be on the sale market.


Despite cautious optimism, at least on the part of some, the scenarios are still complex.

Considering that, we all hope, the scenarios in terms of pandemics are maintained and there is no reversal in the scenarios already outlined for the coming months.


And what do you think will be the evolution of the market (and of all the implicit variables) for this year 2022?

Does it advance full of strength or do you enter into an expectation of the evolution of the economic and financial situation?

Or do prices continue this upward trajectory and continue to push national residents of most of, at least, the district capitals to the periphery?

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