There are, without a doubt, concerning factors like the increase of EURIBOR rates, making mortgages much less affordable & attractive, plus creating a problematic situation with the variable rate loans. However, over 90% of mortgages in Portugal have an effort rate below 27% and a monthly installment below 470€ (data from the bank of Portugal). The effort rate is in short how much of the household monthly income is applied towards the monthly installments.
I personally believe there will likely be some repossessions, but I strong doubt they will be enough to crash the market. There's also the fact that the Portuguese Government has been implementing measures to postpone and safeguard families, both during covid and now for the rising EURIBOR (Decreto-Lei n.º 80-A/2022). No one knows if these measures are enough the help families get back on their feet, but honestly, I'm still positive when it comes to the real estate market.
The buying market is experiencing a lowering trend, as many buyers that were looking to loan are stepping out, and investors feel less comfortable to take loans too. Furthermore, the economy is still suffering the after-effects of COVID.
This can be a positive thing for the Real Estate Market - the price inflation that took place in the past few years was rather unsustainable. I do not know how long the prices will continue to decrease (or just stabilize in some areas), but I suspect once summer months and consequent rise in tourism arrive, things might start to pick up again.
The rising trend of immigration from wealthier countries has not been decreasing, very much the opposite is happening. This leads to sustainability being a big concern for locals right now. The drastic inflation of rental prices and slower but equally steep increase of buying costs, with very small increases on wages, is driving locals out of their own city, and even their own country. This is, in part, due to our own governmental policies, but foreigners coming to Portugal in a much stronger financial positions, do play a very big part in this equation.
Portuguese people are increasingly more concerned about affording to live in their own cities, and many truly stopped being able to. Culturally, this has a huge impact as well - a lot of cultural traditions are lost with this phenomenon, and cities end up losing the charm that once attracted the foreigners in the first place. It's quite a paradox.
Like everything, there are the pros and cons, cities are being renovated and improved on from an infrastructure and diversity point of view, and the cash flow definitely helps the economy.
But is this a balanced exchange?
I would say, no. It isn’t.
I don’t believe the fault lies with the foreigners. They might be the catalyst but the situation developed the way it did because governmental policies allowed it. The real estate market in Portugal is extremely under regulated and supervision is almost non-existent.
People can price their property however they see fit, not needing to provide any justification or market comparison. Buyers have no access to information on market prices and previous transactions. Real estate agencies operate on commission (which is a perfectly valid and logical model for sellers), so they are incentivized to raise prices. It is standard practice for the seller agents to attract and represent the buyers in the transaction, although they are working and getting paid by the seller.
I believe that this unsustainable increase could have been avoided, or at least decreased, with proper market regulation and the elimination of the conflict of interest that lies in representing both the buyer and the seller. Lisbon, Algarve & Porto are becoming very clear examples of unsustainable growth in prices fueled by high demand, greed, lack of regulation, and conflict of interest. This even shows clearly in the study referenced at the start...
As the owner of Savvy Cat Realty, a business that was started to help expats make good deals in a sustainable way, and integrate into Portugal positively, I’m concerned about 2023. Unfortunately, I believe this drop in real estate will be temporary and things will soon pick up again - our internal economy isn’t ready, the Portuguese people aren't ready.
Don’t get me wrong, it’s mostly good for my business. But I like to look at the big picture: Our minimum wage is going to be 760€ in 2023, with an average salary of 1379€, we have 8k per square meter average prices in the center of Lisbon, and 5,5k in the center of Porto. Anyone can do the math and realize that is not sustainable.
Overall, I don’t see the real estate market or the economy being "fixed" any time soon. As a business, we are doing what we can to help "even out the playground". We can’t make it more sustainable on our own. But, we will keep doing our best to have a positive impact, and hopefully inspire some change! We also hope that expats coming to Portugal make an effort to get informed in order to reduce negative impact.
Either way, Savvy Cat Realty will continue to offer ethical savvy advice and insight, and get even more information out there so we can help as many people as possible make an informed and sustainable move & investment in our beautiful country! Even if not purchasing our services.
by Ana Caramujo