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Sales market activity continues to slow in Portugal

The residential housing market in Portugal is still struggling for momentum as key activity indicators covering demand, sales and instructions all remain in negative territory, according to the latest analysis.

However, conditions are a little firmer in the lettings market, with demand continuing to rise and this is expected to push rents slightly higher over the coming months, says the May survey report from Confidencial Imobiliário and the Royal Institution of Chartered Surveyors (RICS).

New buyer enquiries softened again, as a net balance of -15% of survey participants noted a decline over the month. What’s more, demand declined to a greater or lesser degree across all regions covered in Lisbon, Porto and the Algarve.

At the same time, the volume of homes being listed for sale continues to dwindle. Indeed, the survey’s indicator on new instructions has been stuck in negative territory for over two years, while the resulting lack of stock is likely a significant factor dampening demand.

Alongside this, agreed sales slipped again, with a net balance of -9% of respondents reporting a fall during May, the third month on a row in which sales have weakened at the headline level.

Looking ahead, sales expectations are now broadly flat, with the net balance of -3% representing the weakest reading since 2013. The headline series on house price inflation remains in positive territory, but only marginally so. May’s reading of +6% is the most modest since 2014, having eased noticeably over the past six months.

From a regional perspective, price trends were cited to be completely flat over the month in Lisbon, while Porto and the Algarve saw slight increases. Going forward, prices expectations for the coming twelve months are still slightly positive, although, at +18%, the net balance is the least elevated since the series was introduced back in 2015.

The weighted confidence index, a combined measure of near term sales and price expectations, dipped to -5, from +2 in the previous report. Even so, a figure so close to zero is more or less indicative of a flat short term outlook.

In the lettings market, respondents continue to report rising tenant demand alongside a tight supply backdrop. As a result, rents are expected to rise further over the coming three months, even if projections are only pointing to modest growth.

‘Credit restrictions are consistently mentioned by the agents that participate in the survey. They state that often there is an agreement from both seller and buyer, but the deal fails due to the new mortgage regulatory conditions,’ said Ricardo Guimarães, director of Confidencial Imobiliário.

‘This is amplified by the perception that sellers’ price expectations have left asking prices incompatible with families’ purchasing power in many cases. In that context, some agents report that several sellers are already reducing their asking prices, aiming to increase the business potential,’ he added.

According to Simon Rubinsohn, RICS chief economist, although growth across the Portuguese economy seems set to remain solid over the coming quarters, the near term outlook for the housing market now appears relatively stagnant. ‘That said, still healthy macro fundamentals should provide some underpinning going forward,’ he concluded.