After the euphoria of recent years, house prices in Portugal are levelling off, heading towards stabilisation. While Portuguese property prices are still rising, they are doing so at a slower rate. Investment in the residential market is beginning to "lose momentum" at a time when demand is weaker and is showing signs of slowing down. The lack of supply of housing still continues to exert pressure on real estate prices in Portugal, but less so than before thanks to an increasing trend of new constructions. With this change of cycle in sight, is it time to start thinking about selling your house in Portugal?
House prices are stabilising. This is the conclusion of the RICS/Ci Portuguese Housing Market Survey (PHMS), a questionnaire of around 150 professionals in the real estate sector conducted by Confidencial Imobiliário and RICS. The results show that the residential market is not only cooling down, but "continues to lose momentum, registering a slowdown in April in both demand and sales," says a joint statement from the two institutions, adding that "although the lack of supply continues to exert some pressure on prices, these are beginning to show some signs of stabilising.”
In terms of demand, the April survey revealed a decline in enquiries by potential customers – a net balance of 7% of respondents reported a decline in new enquiries and this is already the seventh month of negative values. "Agreed sales also fell for the second consecutive month at a national level, presenting, when disaggregated at the regional level, a downward trend in Lisbon and the Algarve, but remaining stable in Porto," says the statement.
Low supply not boosting prices like it did before
Although supply fell again in April (the indicator reached its lowest level since December of last year), "price growth continued to ease off at the national level", with only "a net balance of +7% of respondents reporting an increase in prices in the period under review". This translates into "the most modest balance in four years". In regional terms, respondents reported a stabilisation of prices in Lisbon and the Algarve, although in Porto they continued to show solid growth.
"Although the growth of the Portuguese economy has gained new life in the first months of 2019, the housing market seems to be losing momentum," said Simon Rubinsohn, Chief Economist of RICS, adding that people’s "financial capacity to access housing and the lack of supply may be making themselves felt in terms of demand.”
Ricardo Guimarães, director of Confidencial Imobiliário, points out that "sellers are lowering their expectations, and some are already lowering the asking prices for their properties… despite the decline in the number of new loans granted, operators feel that restrictions on access to mortgages are limiting potential demand."
Taking a look at the data on mortgage lending since the implementation of the recommendations from the Banco de Portugal (BdP), which wanted to put a brake on loans for home purchases, is enough to confirm this scenario. Between July 2018 and March 2019, the percentage of loans in Portugal with a higher risk profile fell from 35% to 9%, something that could be having an impact on rising house prices.
Is now a good time to sell your house in Portugal?
The market may be getting colder, but it's still hot right now. This raises an important question for property owners: is this a good time to sell their property and get a really good deal?
Paulo Morgado, Director of ERA Portugal, says that "the sale of a house can always mean a good investment strategy as long as it is done after careful consideration and analysis of the real estate market." The specialist explained in an interview with Dinheiro Vivo that it is important for owners not to enter into the sale process with the confidence that the market will slow down.
This is an opinion shared by Ricardo Sousa, CEO of Century 21 Portugal, for whom the market boom should not influence the decision: "selling high and buying low is the dream of all consumers, but it can only be achieved by those who have time to wait to sell – maximising the sale value – and by those who have a house to live in until they find another."
Real estate agents believe that it is very important to consider options and evaluate the risks of each business well, completely discouraging hasty decisions just because the market is "hot" and about to enter a new cycle. For Remax, "the decision to buy or sell should not be taken lightly just because of the influence of the economic situation, but essentially because of the future profits that are expected and forecast."
Capital gains impact the decision
One of the most important factors mentioned by players in the real estate market is the capital gains – the amount of possible profit on the sale which is subject to a 50% personal income tax. This means that, after the value of the purchase of the house and all other expenses have been discounted, the seller will still see a 50% cut in their remaining profits.
There are only two ways to escape this heavy bill: having bought a house before 1989 or using the capital gains dividend to buy another house within a period of 36 months – which could end up eating away your profits anyway, since house prices in Portugal, despite entering a downward trajectory, are still high.