To buy or not to buy a house? That is the question. There is always someone trying to work through this dilemma. Should I buy? Should I wait? The decision is never easy. At a time when Portuguese banks are once again more willing to offer mortgage loans for the purchase of property, this may be a good time to buy.
The Association in Defence of Consumer Rights (Associação de Defesa dos Direitos do Consumidor or DECO) has analysed three factors that are influencing the market at the moment and can help you to decide.
First, though, it is worth remembering that the latest figures show that buying a property in Portugal is certainly more expensive now than before. In one year, from the fourth quarter of 2016 to the fourth quarter of 2017, average prices of properties sold rose by 7.6%, from 866 euro per square metre, which is 80 euro per square foot, to 932 euro/m2 or 87 euro/sq ft, according to data released by the National Institute of Statistics (Instituto Nacional de Estatísticas or INE).
In Lisbon, for example, the average cost of buying a house is 2,438 euro/m2 or 226 euro/sq ft, but some properties have even exceeded 3,820 euro/m2, 356 euro/sq ft. The districts of Santo António and Misericórdia in Lisbon are the most expensive. In these two areas of the capital, properties were sold in the fourth quarter of last year for 3,827 euro/m2 and 3,520 euro/m2 (356 euro/sq ft and 327 euro/sq ft). This is a corresponding increase of 54.3% and 30.2%, respectively.
Despite this, lower interest rates on mortgages, low interest rates on time deposits and other guaranteed capital products, and increased investment from non-Portuguese buyers (due to gold visas and the tax regime for non-regular residents) have driven demand for house purchases, according to DECO.
Returning to the initial question with this in mind, then, is it worth buying now or should you wait? Beware of the three important factors presented below:
Property supply has diminished
According to the INE, the number of licensed buildings and completed apartments on offer is less than half than in 2008. While on the one hand demand for real estate has increased, on the other hand, supply has decreased. This is a scenario that is influencing price increases, according to DECO.
Real property prices are higher than bank estimates
DECO analysed 18 municipalities in the Lisbon metropolitan area and concluded that the average price of homes advertised on a specialised website is above the average value of the bank valuation: 35% more for T2 (two-bedroom properties) and 30% for T3 (three-bedroom properties).
"In practice, this may mean that the banking sector is financing property that is being sold at a higher price than the bank valuation," the association points out. As a result, if you want to buy a house, either make sure that the seller has not inflated the price above the bank’s valuation or ensure that your bank is willing to finance the extra cost.
Demand from ex-pats may dry up
"Any decline in external demand is another factor that can contribute to a housing bubble," warns DECO, recalling that the rise in property prices, especially in Lisbon and Porto, has been partly driven by the growing presence of ex-pats. If this demand goes down, it could have negative consequences for the Portuguese real estate market as a whole.
There are no signs that point to a reduction in demand for real estate by non-Portuguese buyers any time soon, "but everything can change if they find a new destination," they state. As it is, Portugal is still one of the cheapest countries in Europe to buy property and outside of the two big cities, houses are still perfectly affordable, so there’s no reason to go running scared.
While DECO concludes that this may not be the best time to buy a house in comparison with the past, because “the market is expensive” and that “you have to be selective about the opportunities that arise”, if you have the monetary means and the desire to buy a Portuguese property, there’s nothing stopping you.
The association also recommends that, if you decide to buy, you do not pay “much more than the value resulting from the bank valuation”. Buying a new house or a holiday home in Portugal is still a great possibility for English-speaking buyers if you know your way around the market and are careful where, when and how you buy. If all else fails, remember there's also the option to rent!