Portuguese Home Sales Fell Amid COVID… But Homes Still Cost More Than in 2019

Despite the pandemic, second-quarter house prices in Portugal were up compared to last year. What gives?

The worldwide pandemic has brought our global economy and society to a standstill, and no corner of the world has been left unscathed.

Illustration by Bogdan Kamuta

So it was not a big surprise when Portugal’s Instituto Nacional de Estatística (INE) released a report last week indicating that the country’ residential real estate market saw a decrease in volume of transactions by 21.6% and a fall in value of house sales by 15.2% in the second quarter of 2020 year over year.

What was unexpected in the report findings was that despite the significant break in the number of sales, the house price index rose by 7.8% in year-on-year terms.

This rate did slip down 2.5 points from the previous quarter, but as historical data shows, dips of these rates are not uncommon. It’s also worth noting that existing dwellings fared better than new ones, with  HPIs of 8.2% and 6.0%, respectively.

INE also reports that April was the worst month for home sales, with a contraction of 35.2% in the number of transactions. In the following months of May (-22.0%) and June (-7.6%), the rates of change began to narrow. The country re-emerging from lockdown in those months has been cited as the biggest driver behind this —  but it could have also been aided by firms adapting their sales strategies to our new reality. 

According to a report by commercial real estate services firm JLL, “360º Portugal Real Estate Market S1 2020,”  the sector evolved, with agencies rolling out online visits to let potential buyers see properties remotely which proved particularly beneficial for foreign buyers.

The effects of the pandemic on home sales were not geographically uniform. The Algarve was considerably more affected than other regions, with a 37.8% drop in the number of transactions, and a 35.5% reduction in home sales value. 

Alentejo proved to be the least affected region, with a 9.5% drop in the number of home sales, and it was the only region with an increase  in the house sales value — a hundredth of a percentage point, that is, but an increase nonetheless. 

While residential real estate has experienced a considerable set back, it has proven more resilient in comparison to other real estate products. Recent reports  about the Portuguese market by JLL and Cushman & Wakefield, another commercial real estate services company,  indicate that commercial real estate was the most hard hit by the shutdown, with retail and hotels receiving the largest blows and residential being in a better position to bounce back. And this was a common trend throughout the continent, according to research published about the Eurozone by Cushman & Wakefield and CBRE, the largest commercial real estate services company in the world. 

CBRE credits the resilience of residential real estate to a combination of inherent characteristics of the product — claiming that “multifamily investment, also defensive in nature, offers reliable income streams and stable capital values” — and to low interest rates. 

The company writes, “lower-for-longer interest rates, weaker inflation and significant asset purchases mean long-term interest rates will remain at historically low levels, which is good news for real estate. As the [ European Central Bank] continues to distort prices in liquid financial markets, and with the property spread remaining attractive, there is likely to be an increased interest in real assets such as property.”

This notion seems to be seconded by analysis of the national market. JLL noted a year-on-year increase of 8% in mortgages granted during the first semester of 2020, and they also forecast  a pronounced recovery in the sector by the end of the second semester of the year, claiming “we already see a sharp increase in demand, nationally and internationally, and more requests from Golden Visa investors.” 

While national real estate actors appear to be optimistic — and let’s be clear, everyone in real estate makes more money when more properties are traded for more money — the less biased Eurozone analysis reports warn about the very real possibility of a second wave of infection, and the detrimental effects a second lockdown could have on economic recovery.

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