Prices continue to rise in Portugal due to strong demand and lack of supply

Strong demand and a lack of supply continues to push up prices in Portugal where the housing market recovery is well underway, according to the latest property market survey.

Although the headline pace of growth remained constant in March 2017 when compared with February, the survey from the Royal Institution of Chartered Surveyors (RICS) and Confidencial Imobiliário points out that price expectations over the next three months have risen continuously since July 2016.

In the lettings market, the shortage of landlord instructions remains a dominant factor pushing rents higher, the report also points out. But the report says that a shortage of supply does appear to be dampening demand expectations, with a net balance of -9% of respondents anticipating demand will soften going forward.

Taking a longer term view, it reveals that survey respondents believe the strongest price increases over the next 12 months will come in the Algarve. Further ahead, contributors foresee the pace of growth converging across Lisbon and the Algarve over the next five years, while expectations remain a little weaker in Porto.

The report says there is a considerable momentum behind the sales market with promised sales rising at the strongest pace on record and this is matched by a pick-up in both demand and sales expectations.

Respondents reported a rise in transactions across the sales market over the month along with an increase in new buyer enquiries. Overall, the March results are consistent with a more buoyant sales market backdrop and activity is expected to gather momentum at a faster pace than previously envisaged.

This increase in overall activity is representative across all three regions of Lisbon, Porto and the Algarve which are covered by the index. At the same time, sales expectations over the next three months strengthened at the national level for first time in three months.

However, there was no change new sales instructions, indicating that the pick-up in demand has not been accompanied by a rise in properties coming onto the market.

The National Confidence Index, an amalgamation of near term price and sales expectations, also continued to increase, rising from 42 in the previous month to 47. The indicator now shows the highest reading since the survey’s inception in 2010.

In the lettings market, the lack of landlord instructions continues to underpin rents which saw further growth over the month, and at a quicker pace, as the net balance climbed from 46% to 53%.

‘Over the last six months there has been a continuous decline in expectations regarding the future number of new rental contracts, marking a change in the trend observed over the last couple of years,’ said Ricardo Guimarães, director of Confidencial Imobiliário.

‘This is happening alongside a strong increase in mortgage market activity, suggesting potential tenants may be starting to view mortgages as an alternative. Going forward, this might reduce the pressure on rents which has been driven by the lack of supply,’ he added.

RICS chief economist, Simon Rubinsohn, pointed out that the rate of unemployment fell to 10% across Portugal in February, the lowest level since 2009 and a consistent improvement in the labour market has coincided with a sharp rise in consumer confidence.

‘On the European Commission’s measure, consumers are now more confident in making a major purchase than at any other point since 2002, and this upbeat sentiment is mirrored across housing market activity indicators,’ he said.