Our point of view is that the Portuguese real estate residential market has a strong imbalance between supply and demand and until it is corrected, most likely prices will continue steadily to escalate in the foreseeable future.
Statistics show there is shortage of housing supply and unit licensing is at an all-time low.
If you compare the new houses coming to market in the period 2011/2020 to the period 2001/2010 the number drops an astonishing 83%!
Also, the stock of existing houses has increased only 1.36% in the last 10 years.
We see three main reasons for this evolution:
- Several of the main local developers bankrupted during the great financial crisis and the European debt crisis period, and their dynamic in launching new projects was never properly replaced in the market.
- Central Bank requires to banks higher own funds allocation for lending to real estate developers which reduces incentive to banks to lend to the real estate sector. Lending to real estate developers weighting in the bank´s loan book has dropped more than 10 percentage points in the last 10 years.
- Licensing process in Portugal is highly inefficient and slow.
On the demand side situation is quite the opposite of the supply dynamics.
There have been important structural changes in the Portuguese family’s profile that requires the market to provide more and smaller houses.
The persons per household have dropped from 3.1 to 2.4 from 30 years ago and the number of households has increased from 3.15 million to 4.17 million.
A large part of this evolution is due to less children in the household. The percentage of households with children has dropped in the same period from 45% of the total number of households to about 35% now.
The single person household has increased from 13% to 21% of the total number of households.
The yearly marriages dropped from 7.2 per one thousand to just 2.8 per one thousand.
As you can see by the above, just the local population dynamics would require many more new houses.
However, the demand dynamic is also leveraged by foreigner’s demand.
From the beginning of the millennium, the number of foreigners living in Portugal has increased from about 200 thousand to almost 800 thousand. The latest yearly statistics shows the foreign population in Portugal growing at about 100 thousand people in one single year!
The percentage of houses bought by foreigners in total number of transactions has increased from less than 5% ten years ago to almost 11% now.
In some affluent areas like Cascais, the percentage of foreigners in total population is approaching the 20% mark.
Just in the last five years the total number of US persons living in Portugal more than doubled.
What is driving the growth of foreigners living in Portugal?
From our understanding there´s three main drivers:
- Affordable cost of living in important areas like food, education, and health.
- Safety, as expressed in the international indicators, Portugal ranks consistently in the top 5 countries in the World.
- Tax benefits for affluent retired persons.
The only factor, from our point of view, that has been dampening demand is the higher interest rates by ECB to lower inflation in the Eurozone area.
About 93% of the mortgage loans in Portugal are on a variable rate basis and the families that have borrowed are now feeling the main of a more restrictive monetary policy.
Our view is that higher interest rates have been mainly affecting lower to mid-income areas and the high-end market and areas privileged by foreigners to live will continue to be relatively immune to this negative background.
The above-described imbalance between supply and demand is structural and will take a long time to be correct.
The More Housing Bill launched by the current Portuguese Government just scratches the surface and we expect to have a very limited to nil impact on the residential market.
The Blue Portugal has a unique insight into the real estate area because the founding members spent most of their careers in the real estate and financial sectors and have strong and long links with the major players in these sectors in Portugal.
Don´t hesitate to talk with us on this investment path. You won´t regret it!
