Building costs hamper development

 In Development, News, SIL

The rising cost of raw materials used in construction is now the biggest obstacle to developing property in Portugal, particularly much-needed housing for the Portuguese middle classes according to developers interviewed for a survey.

In the past, red tape and the sheer time it takes to get planning permission were the main stumbling blocks to getting projects off the ground because developers have a timeline for their investments and developments beyond which it is no longer financially viable to pursue the development if it is held up for two or three years awaiting planning permission — often the case in Portugal.
And although the issue is still serious — albeit some steps to accelerate planning process times have been made by Lisbon City Hall under Mayor Carlos Moedas – these concerns have been far outstripped by rising construction costs of 18%.
The concerns were illustrated at a conference ‘The Effects of International Instability and the Increase in Construction Costs’ organised by SIL in conjunction with the APPII (Portuguese Association for Real Estate Developers and Investors) held as part of a round of debates held at the SIL Portuguese Property Fair 2022 which ran in Lisbon between 12-15 May. (See full report on Wednesday.)
A recent survey, ‘Portuguese Property Survey (PIPS), produced by the magazine Confidencial Imobiliário and the APPII revealed that the Portuguese real estate market kicked off 2022 on a positive footing.
Yet developers say that their expectations for the second quarter of the year are not so optimistic because of an expected fall in the number of sales.
Faced with an increase in construction costs over the past year (18%), the majority of developers surveyed revealed that they expected to have to increase the sale price of housing because of the increase in costs, with developments for middle class housing hardest hit.
“It is vital that everyone understands that we are going through a situation in the real estate construction ecosystem which has not been experienced”. (for many years) For the first time since we began this survey in 2020, developers are saying that the main obstacle to real estate development are construction costs”, said Hugo Santos Ferreira, President of the APPII, adding that the only way to offset this increase was to reduce contextual costs (i.e., red tape and taxes).