The real estate market continues to simmer across the country. After the various periods of confinement in the economy, which caused slight corrections in the market, the purchase and sale of homes in Portugal are taking great steps to reach new records this year. According to data from the National Institute of Statistics (INE), in the first half alone, more than 96.6 thousand homes were sold, which translated into a turnover of 15.5 million euros. It was the best first half since, at least, 2009, when INE started collecting data.
The strength of the market is such that, in the first six months of the year, the number of houses that changed hands surpassed by more than 10 thousand the numbers reached in 2018 and 2019, golden years of national real estate. “We are selling off-plan properties, something that hasn’t happened since the 2008/09 crisis”, says Carlo Monteiro. The professional at Zome confides that, currently, he even sells properties that only see the light of day after two years. For the real estate consultant, who in 2020, in the midst of the pandemic, surpassed the threshold of 1 million euros in commissions for the first time, 2021 will be another special year for his team, foreseeing a 13% growth in turnover.
The strong dynamics of the market in recent years have led the Portuguese to increasingly consider the purchase of a home as an investment asset. According to INE, between the first half of 2016 and the first half of 2021, the price of houses in the 35 largest cities in the country increased, on average, by 10.3% per year. Few assets can rival gains of this order of magnitude – even discounting capital gains taxation (28%), in the last five years real estate has offered, on average, net gains of 7.5% in the 35 most populous cities in the parents.
Beato, Marvila and Olivais shine in Lisbon
In the investor’s equation, the potential gain from a real estate investment may not be limited to the property’s appreciation. It is enough for the asset to be monetized for as long as it is in its possession through the rental market. If so, and taking as a reference the rental market values of the last three years in Portugal, an average annual gain of 5.8% can be added to the property’s valuation, boosted by the rents received. Taking into account the behavior of the market since 2018, this means that those who bought an apartment three years ago and put it up for rent account, until today, an average annual gain above 10%.
According to INE, rents from new lease contracts have increased, on average, 8.3% per year since 2018. This dynamic works as an important catalyst in the development of the national residential lease market as an investment asset, particularly in metropolitan areas of Lisbon and Porto, where the rental market is more evolved.
In May of last year, a real estate consultancy JLL published a study focused on residential leasing in Lisbon and Porto, called “Investing in the Lease Market”. In that document, JLL analysts concluded that “in Lisbon, houses are rented, on average, in less than three months and have returns above 3% in the vast majority of the territory”, and that “the central area of the city, which covers the parishes of Estrela, Campo de Ourique, Campolide, Avenidas Novas, Alvalade, Areeiro and Arroios, appear as the most appealing for homeowners who place their homes in the residential rental market”. Consulting the latest data from INE, it appears that, today, the rental market generates gains well above 3% for its owners – in fact, there is not a single parish that presents an average annual return (income) in the rental market below 3.5%. On average, a property in Lisbon, purchased today and placed on the rental market, offers an average yield of 5.1%.
Among the parishes with the greatest gains are Beato, Marvila and Olivais, which have income above 7%. This means that, in just over ten years, with no changes in the value of the rents, the investment made in the purchase of the property is fully paid off with the value of the rents received – these accounts change when the weight of taxes on capital gains is accounted for. . On the opposite side are the parishes of Santa Maria Maior and Santo António, with income of 3.86% and 4.03%, respectively. In this case, it will be necessary to wait 18 years to recover the entire investment in rents.
It should also be noted that no parish, with the last one in Carnide (where rents have fallen by 2% since 2018), has a lower yield today than three years ago. In other words, the Lisbon market is now more appealing than in 2018 for those who want to invest in property with the aim of placing it on the rental market.
In Porto, the average yield of rental properties is lower than in the capital, standing at 4.5% – especially in the parishes of Bonfim and Ramalde which, at the end of the first semester, offered annual gains of 5%. However, unlike the Lisbon market, at Invicta, the rental market registered an abrupt drop in yields. In Campanhã, for example, rental properties that today have a yield of 4.1%, in 2018 were on the market with a yield of almost 7%. The sharp drop in the rental yield rate is linked to the explosive rise of 58% in property prices in the city of Porto, in this period, compared to a growth of “only” 19.4% in the median value of rents for property. new lease contracts.
Investors and Families Want More Homes
The latest data from INE show an increase in the mediated value of bank valuations in Portugal, placing the square meter of family members at 1251 euros, 10.6% more than in October last year. The most significant changes were seen in the Lisbon Metropolitan Area, where the value of forecasts increased by 10.3% in the last 12 months.
The behavior of bank valuations closely follows the evolution of deals carried out by buyers and sellers. Also according to INE, it appears that the median value of sales per square meter of households increased by 7.14% between June 2020 and June 2021 and that the rents from new lease leases registered an increase of 6 , 4%. “There is still a lack of property supply. There is still much more demand than supply, especially in the larger cities in the North”, says real estate consultant Carlo Monteiro.
The supply contraction is a reality that gained prominence in 2020, with the beginning of the pandemic. Last year, 22,800 buildings were licensed, 3.5% less than in 2019, and 15,000 buildings were completed, 6% more than in 2019. These numbers blur with a 4.15% growth in the number of buildings verified in 2019 face 2018 and with an increase of 11.6% in the number of buildings completed between 2018 and 2019. The first figures for this year released by INE show a slight change in dynamics, appropriate for the licensing of 6,500 buildings in the first quarter of 2021, 7% more compared to the same period of the previous year and 1% more compared to the figures recorded in the fourth quarter of last year.
The property supply has slowed down considerably with the pandemic, with many developers and builders being cautious about the future. However, on the demand side, the behavior was the opposite. Never have so many houses been bought as in recent years.
On the household side, demand for housing has shown no sign of saturation since at least October 2018, with home loans growing steadily every month, culminating in €96.3 billion in new loans in October year (4.4% more compared to this October 2020). The bank’s “broad hands” policy is very notorious in the evolution of credit to families. According to data from the Bank of Portugal, this year, new records were set every month, with the monthly volume of new home loans always standing above 95 million euros. Until the beginning of this year, the best month ever was December 2020, when the volume of new mortgage loans reached 95 billion euros.
On the investors’ side, the national real estate market has proved to be a highly desired asset, particularly on the outskirts of large cities. Amadora is an example of this: in the three years, the average value of the square meter soared by 58%. “It’s an interesting market for investors looking for a house to buy, renovate and then sell”, reveals Rafael Neves, director of Century 21 House Market at Amadora. The executive real estate consultant that in the country’s most populous city, the investment market is made mainly by Portuguese investors who, on average, “play with around 125 thousand to 130 thousand euros and, mostly, with their own capital”.
Porto and all the cities around it have also been sought after by investors. According to data from INE, the average value of the square meter of properties sold in the city of Porto, in the first half of 2021, was 2238 euros – 18.5% above that verified in the same period in 2020. In its periphery, in cities such as Valongo, Vila Nova de Gaia, Vila do Conde, Matosinhos and Maia, the price rose, on average, 13.3%. “Porto still has a lot to grow”, reveals Marta Valle, leader of the Marta Valle Real Estate team. The furniture consultant highlights a market that is still very old, with many old buildings that prove to be “good deals” for those who want to remodel and sell.