Property prices and sales still falling in weak Portuguese market

Residential property prices and sales are continuing to fall, according to the March 2012 index from the Royal Institution of Chartered Surveyors and Confidencial Imobiliário published today (Wednesday 25 April).

The results highlight the continued, broad based weakness of the sales markets in terms of prices, activity and expectations in contrast to the partial strength of the lettings sector.

In the sales market, although the national price balance improved slightly from -64 to -56, indicating 56% more respondents experienced price falls rather than rises, it remains very negative.

Meanwhile, the national confidence index, which is a composite index based on price and sales expectations, improved slightly from -53 to -48, a five point rise, but it also remains negative.
The report says that house price declines continue to be driven by falling demand. Rising supply is not presently an issue, with new vendor instructions falling since December 2010.

In recent months however, there has been a trend towards stabilisation, increasing the risk that supply may be an additional factor weighing on the market going forward.

The lettings market, meanwhile, continues to benefit from the fallout in the sales market, as households who cannot access mortgage finance are renting instead. Indeed, tenant demand continues to rise and lettings expectations remain robust.
However, rents are falling and rental expectations are negative. This could reflect an excess of rental stock in the market, but affordability constraints may also be an issue given the macro environment. Moreover, there is also some anecdotal evidence from agents of a mismatch between the type of stock offered to let and that in demand.

‘Almost all comments from agents mention the critical impact that financial institutions are having on the market at present. Not only are credit restrictions limiting transaction volumes; banks are also aggressively trying to run down their distressed property inventory, which is being cited as an additional source of downward pressure on residential prices,’ said CI spokesman, Ricardo Guimaraes.

But Josh Miller, RICS senior economist, pointed out that rents are also declining. ‘Although sales volumes continue to fall, activity in the lettings market is rising as households who cannot access mortgage finance look to rent instead. However, rents are also declining in spite of the shift in tenure preference away from owner occupation which may be indicative of the current stresses on the household sector reflected in a 15% unemployment rate,’ he explained.