Confidence – a key factor in Portugal’s real estate market

How is the crisis affecting the residential real estate market and will recovery be rapid when the crisis ends?

José Araújo
Head of Property Sales, Millennium bcp

The current crisis caused by the Corona Virus is cloaked in many uncertainties, such as when it will end and what the final impacts will be when this health crisis has passed. The full effects have yet to be felt and are affecting all sectors of the economy across the board; families, companies and businesses, and the real estate sector is no exception.
However, the real estate market in general is an experienced sector that emerged stronger from Portugals economic and financial crisis at the end of 2013 and now, when there are still so many uncertainties, confidence is important. In this context, I believe that the experience and confidence that all entities and agents who work both directly and indirectly at the heart of this market are vitally important to keep expectations at a good level, with new ways of working and doing business. We are all already working towards this!
As in other business areas, real estate business deals have not stopped, on the contrary, they continue to be made in all segments, albeit at a lesser quantity and with delays in the entire contracts process. Possible buyers in turn now must study the possible scenarios of a post-Covid-19 world, namely employment and economic recovery, which is why they are taking longer to make decisions.
Whether from my own experience in the sector, or from the amount of transactions I’m seeing from business partners and even clients, I feel that the sector is alive and kicking and once again will show that it is in the vanguard of the recovery. The changes will be real and positive because there is a genuine feeling of optimism, one where the development of new technological/digital tools will be decisive.
Technological development has already been astonishing in all aspects from 3D virtual house viewings, offers sent via digital means, and on-line bank transfers etc., etc., which are realities and which is why business and offers continue to flow even in times of social distancing. As to prices, I am convinced that they can, at the first opportunity, stabilise.
Moreover this was already the market trend this year with more product supply coming onto the market for sale for the Portuguese middle class, as well as the various municipal council plans to increase property supply for rent in city centres at controlled prices.
Its development will also depend to a greater or lesser extent on the financial health of the developers, indeed with existing liquidity in the markets and the currently low spreads, I don’t think there will be an undue reaction with prices falling drastically. Demand will remain at current asking values as far as possible providing the economy and employment levels recover, obviously.
Another factor which remains to be seen is if the same tax sweeteners and a political willingness to retain current investment and private incentives for foreign buyers remain, particularly for those funds which came into the national economy from 2014 onwards and the jobs linked to them, given that home-grown capital is not abundant in Portugal as is known.
In the non-new-build market some opportunities may arise since unemployment might see a return to the second homes market and even a change from recent city-centre purchases to those in the outskirts because the increase in teleworking means there is not quite so much need to be so close to company networks and at a better price may drive down demand in these sub-segments, but not sharply. Probably, the end client looking for a house will go out and start looking in the coming months, benefitting in relation to those who bought to resell. But those who bought to rent will continue to have a presence because demand will certainly increase.
There will be some segments in the sector which could take longer to recover because that will depend a lot on the mass movement of people via air and across open borders, this particularly being true for local accommodation and the hotel segments. The psychological confidence factor of users will be vital for the speed of recovery, which is why I have no doubts that just like after 11 September (in terms of security measures regarding explosive and dangerous materials), airports, airlines, hotels, restaurants, city transport and some other sectors of our economy will have to have disinfection measures in place and ensure health and hygiene security in order to receive customers in the short term.
The overall level of confidence nationwide and the reaction to the previously mentioned safety measures will be decisive for the recovery of the global economy. Indeed, Portugal will continue to be attractive because of its climate, prices, food, lack of crime and the friendliness of the population. And we also anticipate that the incentives our economic regulations to ensure in the post Covid-19 period and as seen up until the end of 2019 as I have mentioned and have, moreover, various articles in the international press mentioned too will continue.
Various national and international analysts speak of a phased U-shaped recovery in the world economy, with it taking over a year to get back to the growth values seen at the start of March this year. But as to the real estate sector, the vast majority believe it will be a V-shaped recovery, in other words this year will suffer an overall fall to December and a rapid bounce back in 2021 for all the aforementioned reasons I have outlined. Indeed, there are sub-segments that will emerge even stronger such as co-living, co-working, offices and smaller buildings, parcels of land close to large cities, build for rent and even local commerce. Furthermore, one segment that remains unclear is shopping centres and whether they will be able to reinvent themselves and adapt to this new reality of it not being advisable to have large crowds until a reliable vaccine is available worldwide to protect us from this awful virus.
This sector, in my opinion, unlike the previous crisis, is much better prepared to withstand a period of slowdown. The market should be aware of the vulture funds which are already in the market seeking out owners who are running scared with potentially distressed assets and hold out accordingly.
According to some large international consultants and analysts, on a time curve to recovery, real estate will occupy the upper intermediate echelons of the main economic sectors affected by the virus, so that some cautious, but confident awareness is called for.
At Millennium bcp we are well prepared for this and to continue in the market supporting our clients and sector assets, trying to ensure that the market bounces back as quickly as possible and at the right price, in the last bank crisis ended up on bank balance sheets because of the mortgage default of their owners.
We have had successes over the past 9 years with the help of partners in estate agencies, from the bank’s commercial networks and the entire internal team involved and from a commercial team dedicated exclusively to real estate and of which I am proud to be a part. And of course, the investors, clients, developers, national and international funds which have shown their preference for us by buying our properties secure in the knowledge that they have an honest and long-lasting relationship.