Lettings market growth in Portugal reached a record high in April

Rental growth expectations in the residential market in Portugal have reached a record high while a lack of supply continues to push up prices, the latest index shows.

Overall prices in April were being squeezed higher due to a combination of steady demand growth and a deteriorating flow of fresh sales listings.

In the lettings market a persistent imbalance between demand and supply means that rents are now rising at their fastest pace ever, according to the report from the Royal Institution of Chartered Surveyors (RICS) and Confidencial Imobiliário.

When it comes to sales, the index report shows that the indicator on new instructions remained in negative territory for a thirteenth successive report, marking the longest uninterrupted sequence of declining supply since 2011.

Lisbon, Porto and the Algarve all saw a decline in new listings coming onto the market during April. Alongside this, new buyer enquiries increased, with a net balance of 28% of respondents reporting a rise in demand over the month compared to 20% in March.

Newly agreed sales also edged up according to the latest results, albeit the pace of growth moderated, with the net balance easing to 15% from 24% previously. Going forward, however, respondents returned slightly stronger sales expectations relative to each of the past two reports.

At the same time, prices remain on an upward trajectory, and respondents foresee strong price growth continuing both in the near term and further ahead. Indeed, a headline net balance of 68% of respondents expect prices to be higher in 12 months’ time.

When broken down, contributors are most confident of further price growth in Porto compared to all other areas, returning a net balance of 76%. The Algarve now displays relatively more modest price expectations at the 12 month horizon, albeit the net balance of 55% still represents a solid reading.

The National confidence Index, a combined measure encompassing near term price and sales expectations, improved to 34, up from 30 in March’s report. As such, this measure is consistent with a solid outlook for activity over the coming months, the report concluded.

‘Transaction prices are moving up, responding to continuous demand growth and, as a consequence, the lack of new units on sale. This is impacting both buyers’ and sellers’ expectations and is enabling prices to recover in general terms, increasingly outside the historical centres,’ said Ricardo Guimarães, director of Ci.

‘There is still room for further recovery, as in many locations transaction prices are below pre-crisis levels, despite increasing rapidly. Agents are concerned about the impact that might be caused by potential changes in the legal framework regarding rental and short term rental sectors,’ he explained.

RICS chief economist Simon Rubinsohn pointed out that in line with the euro area average, growth across the Portuguese economy moderated in the early part of the year, as the annual rate eased from 2.4% to 2.1%, the softest since 2016.

‘Nevertheless, temporary factors were at least partly to blame and although expansion may not be quite as strong as last year, 2018 still looks set to deliver a solid outturn. This should continue to provide a supportive backdrop for housing demand,’ he added.

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