"House prices must be adjusted to purchasing power"

Even in the current context of uncertainty, high interest rates on bank loans and rising living costs, there is still interest in buying a house in Portugal. The issue is that there is a "big gap" between the prices of houses for sale and the amounts that families can actually afford, which is reducing house sales in our country. That's why Ricardo Sousa, CEO of Century 21 in Portugal and Spain, decided to "adjust the offer to purchasing power" and, as a result, "we increased our number of transactions in the second quarter," he told idealista/news.

Today, house sales are slowing down in Portugal, not only because of high house prices, but also because of the lack of confidence in the market, high interest rates on housing loans and the loss of purchasing power due to inflation. There is also a lack of confidence in the market, high interest rates on home loans and a loss of purchasing power due to inflation. But in Ricardo Sousa's view, the current level of interest rates is normal. "We can't consider a 4% Euribor to be expensive. What we had before was not normal," he said in an interview, referring to the period of around six years in which Euribor rates were negative, below 0%.

In his view, "the serious problem for many families is that they bought houses beyond their means, under the illusion that interest rates would remain low and at levels that were not normal. And that's the problem," he says.

In Ricardo Sousa's view, families continue to want to buy and rent homes, but "there is a big gap between the existing offer and what they can afford". That's why this US-based chain decided to change its strategy for attracting and selling houses: "It's as simple as adjusting the offer to the purchasing power". Specifically, the average transaction value at the property broker in Portugal and Spain fell by around 20% to 140 thousand euros. As a result, "we increased our number of transactions in the second quarter by 42% compared to the previous quarter," says Ricardo Sousa, CEO of Century 21 in Portugal and Spain, in the interview with idealista/news that you can read here.

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How have house sales been going in Portugal?

It is true, and unavoidable in the current context, that there is a general decrease in the number of transactions, because the available supply is not adjusted to the purchasing power, particularly of young people. With the increase in interest rates on housing loans, house instalments have risen, as have effort rates, which has reduced the number of houses that can be bought.

Even so, the number of transactions expected for 2023 and 2024 is at very healthy levels and gives us a solvent market outlook for the coming years. There will be a decrease, yes, but we'll close the year at 150,000 transactions in Portugal. And in Spain it will surely be over 500,000 sales.

"We lowered the average transaction value by around 20% to 140,000 euros in the first half of the year"

How have you adapted your property brokerage strategy in the face of falling demand?

It's natural for the number of transactions to fall, but it's not because there's no demand. People need housing. People want to buy and they want to rent, but there's a big gap between what's on offer and what they can afford, and this is where we have to work together. 

What we're doing at Century 21 is reducing the average value of the properties we have for sale. We lowered the average transaction value by around 20% to 140,000 euros in the first half of the year, i.e. our effort was to identify properties on the market that were adjusted to current purchasing power. As a result, we increased our number of transactions in the second quarter by 42% compared to the previous quarter. It's as simple as adjusting supply to purchasing power.

Not least because there are always changes in families' lives. Divorce, employment and health problems end up affecting the pace of the market and this leads to instability. But funding is also available for these cases. In any case, these situations affect housing needs, as they can change family structures.

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When you say that you've lowered the average price of houses for sale by 20%, do you mean that you've started collecting cheaper houses instead of houses priced at 200,000 euros, for example?

That's right, we're making this move in all segments. We've tried to lower the price of this offer to adjust to purchasing power, which is under pressure and falling across the board. So we've tried to identify the opportunities at the lowest prices in each market segment.

What is also very important - and what I really see as the responsibility of the property consultant who deals with used property owners - is to give a rational view when it comes to setting the price. Because the seller's definition of the price is very emotional. 

What we did was negotiate the sale price of the house in order to adjust the emotional sale price to a more rational sale price, and so we adapted the initial sale price of the properties in our portfolio as much as possible.

"We can't consider a 4% Euribor as expensive. What we had before wasn't normal."

When Euribor rates were low, what was the behaviour of families buying a house?

We can't consider a 4% Euribor as expensive. What we had before was not normal [Euribor rates below 0%]. The serious problem for many families is that they bought a house beyond their means, with the illusion that interest rates would remain low and at levels that were not normal. And that's the problem.

For this reason, the European Central Bank, in coordination with the Bank of Portugal and the Bank of Spain - among others - decided in 2018 to create a macro-prudential rule on stress tests. In Portugal, the banks were forced to calculate effort rates by adding 3% (the stress test) to variable rate loans, to simulate a situation where interest rates rose by that amount [which has now been reduced to 1.5%]. And this indicator would have to be less than 50%, otherwise you wouldn't be entitled to the loan. I think it was a good decision at the time.

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Which homes sell the most in Portugal, new or second-hand?

New and second-hand homes are sold in Portugal, just as they are in Spain. But the sale of second-hand homes is more significant because there is a lack of new construction in the residential market. Therefore, in both countries second-hand homes are the ones that move the most in the market, because there are more used homes for sale and also because the price of these dwellings is increased by the purchasing power of both Portuguese and Spanish families.

The construction of new homes in Portugal is at a slower pace than necessary, but it is much higher than in Spain. And this is demonstrated in the data on the number of new construction transactions. Now, the price level is relatively stable in the construction of new homes and the expectation for 2024 is that this trend will continue, which is an incentive for large and small property developers, who can thus maintain their production capacity for new homes.

"The price of second-hand homes is being helped by the purchasing power of both Portuguese and Spanish families."

Are foreigners buying houses?

Over time, the representation of foreigners in all transactions has been very similar in both countries. In Portugal, the weight of foreigners fell to 18% of our transactions, while in Spain it represented 19%. The end of the gold visa programme in our country has generated a lot of uncertainty in the international market and will benefit Spain, which is a very well-positioned brand globally.

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What are the differences between the Portuguese and Spanish residential markets?

There is a huge difference between the Spanish and Portuguese markets, and there is one point that I would like to emphasise, which is currently dominating the public and political debate: access to housing. Currently, if we analyse the Lisbon region, we have a house purchase effort rate of over 45% in all the municipalities. And in the municipality of Lisbon it's even over 60%, which is incomparable to the situation in Spain.

This is because in Spain, in terms of the purchase and rental effort rate, there isn't the same problem of access to housing as in Portugal, especially for young people. At the moment, Spain is better prepared, positioned and resilient to face the current moment than it has been in previous crises.

"Our expansion plan involves consolidating the northern region and the entire interior of Portugal, which borders Spain."

What are Century 21's expansion plans for the coming years?

In Portugal, we already have more than 220 offices and 5,000property consultants, and we cover almost the entire territory. Our expansion plan involves consolidating the northern region and the entire interior of Portugal, which borders Spain. Naturally, we are also looking to strengthen our presence in the Lisbon region and other markets. In any case, in Portugal we are already at an advanced stage in our expansion project.

In Spain, we are focussing on consolidating our expansion in the province of Barcelona, Costa Brava, Costa Dorada, the Community of Madrid, Costa del Sol, the Canary Islands and, of course, the Levante, Valencia, Alicante and Murcia axis.

For 2024 and 2025, our goal is to maintain sustainable growth and then scale the business with a different investment plan.

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