Poor economic outlook affecting property market in Portugal

A weak economy and lack of lending is continuing to depress the residential property market in Portugal, according to the September RICS/Ci housing market survey published today (Monday 24 October).

The National Activity index has turned slightly less negative, but the National Confidence index edged lower last month, according to the report from the Royal Institution of Chartered Surveyors and Confidencial Imobiliário.

Demand rather than supply is the main factor weighing down on prices and activity in the Algarve is not quite as negative compared to Lisbon and Porto, it also shows.

The National Activity index edged up from -33 to -27, while the National Confidence index edged down from -51 to -53. The national price balance fell further from -59 to -65, the lowest reading since May.

At the national level, the latest results show that price declines continue to be driven principally by falling demand. Indeed, rising supply is not presently an issue, with new vendor instructions falling consistently this year.

However, beneath the national reading, new instructions did rise sharply in the Algarve. The survey has generally been showing that developers are experiencing relatively softer price falls than sales agents.

This month, however, developers reported that prices declined at a much faster rate, roughly matching that of agents. This had also taken place in May, but was quickly reversed the following month.

Whether this is again a temporary blip, or the beginning of something more permanent whereby developers are now less resistant to price falls remains an open question at this
Stage, the report says.

It also points out that the national picture masks some interesting regional variation, with activity in the Algarve not quite as negative compared to Lisbon and Porto.

‘It is demand side of the equation that is weighing down on prices in Portugal, with the double digit unemployment rate feeding through to weakness in new buyer enquiries,’ said RICS senior economist, Josh Miller.

‘Oversupply, unlike in Ireland or Spain, is not an issue. The official statistics show no evidence of overbuilding prior to the economic downturn and new vendor instructions have been falling all year. As a result, once the economy starts to recover, Portugal will not have to cope with the residential inventory issue faced by other countries,’ he added.

CI Spokesman, Ricardo Guimaraes pointed out that survey respondents continue to highlight the negative economic backdrop and credit availability as factors that are dragging on activity. ‘Respondents are also beginning to see an increase in auctions of repossessed properties by banks, which is putting additional downward pressure on prices,’ he added.