DBRS in councils cash alert over property slowdown fears

The ratings agency DBRS says that Portugal’s cooling residential property market could put at risk local council revenues.

The financial performance of Portugal’s municipal councils has improved over the past few years, despite the pandemic, thanks to the substantial uptick in property demand in Portugal, bringing in millions of euros in property taxes to municipal authorities.
This has helped 308 local councils up and down the country reduce their debt, but DBRS warns that if the market continues to slow it will put a serious dent in their finances.
IMT property tax was responsible for 18% of the revenues that local councils received in 2022.
“We believe that the main risks that Portuguese municipal councils are exposed to could come from a slowdown in the real estate market”, warns the Canadian ratings agency.
However, this slowdown is not likely to affect Portugal’s luxury residential market thanks to continued buoyant demand from overseas relocators, particularly wealthy Americans.
Despite an overall sluggish start to the year, Portugal’s real estate sector grew in the second quarter of 2023 and luxury house sales were no exception.
According to Miguel Poisson, CEO of Portugal Sotheby’s Realty in an interview with the business title Negócios, there could be a slight ‘inflexion’ in 2023 because of high interest rates and inflation. However, he is optimistic that the market will return to its usual growth in 2024.
Americans led the way in house purchases in the first half of the year, but there was also a surprisingly strong demand from Italian buyers.
The value of luxury real estate transactions in he first half of 2023 suffered a slight fall on the €337 million achieved in 2022. However, looking at the data for the second quarter of 2023 here was a QoQ increase of 29%
US buyers continued to lead purchases with 27% of all transactions to overseas citizens in H1 of this year, but the biggest growth was registered by Italians who bought more properties than the Germans.
In the first half of 2022 Italians represented just 3% of luxury house sales, but the first half of 2023 saw Italian purchases triple to 9%, coming fourth in the ranking of the main international buyers; the top three being the Americans, British and French.
However, when it comes to new built homes (luxury or not) half of all new homes put onto the market this year have already been sold according to the data base “Buildings for Sale” (Edifícios em Comercialização”) from Confidencial Imobiliário (CI), most of them off plan.
Between January and June this year, the data base system identified the marketing of around 120 residential developments in a universe of 4,700 new homes, of which 51% have already been sold.
According to Ricardo Guimarães, Director of Confidencial Imobiliário (pictured): “This result is rather surprising given the adverse macroeconomic climate in which it would be usual to expect a strong slowdown in demand.
“However, a take-up rate of 51%, which means half of the offer launched onto the market sold off-plan is a very positive performance that flies in the face of a stalling demand. The developers themselves have already indicated in the recent confidence survey carried out by CI – ‘Portuguese Investment Property Survey’ – that the “least of their problems was a lack of demand.”