Jorge Garcia, a real estate specialist, analyses recent developments.
Source: Author
Author: Jorge Garcia, Real Estate Specialist
The housing access crisis, the sluggish state and real estate Darwinism
There we were once again at another edition of SIL – Portugal Real Estate Fair, where the “star” theme was “built to rent”. In an environment identified by the property developers and estate agents present as one of “more considered decision-making by those buying and investing”.
“Built to rent” brings new challenges to property development, being a segment that attracts long-term non-speculative real estate investment, institutional operators such as REITs, sovereign wealth funds, insurance companies and pension funds. A model that changes the objective of the property business: from immediate income through selling properties at the highest possible price, to optimising income over decades.
With purchase prices continuing at unaffordable levels for the majority of the population, a “Seller’s Market” with a structural supply deficit and robust demand, renting emerges as an option for affordable housing needs.
The slowing property market
Until now, in the sales market, well-located properties with market values adjusted to their target audience have seen rapid absorption. In a slightly slowing market, absorption time will tend to increase.
Still far from a “Buyer’s Market” situation, for similar properties misaligned with their target and overvalued, buyers will pressure negotiations and owners will either reduce prices or fail to sell.
News coming from Italy already reflects a trend towards falling prices. In Portugal, the property market is beginning to show signs of change, particularly in the second-hand segment, given the speculative mentality of most small property owners.
Inflation, interest rates and housing credit
The suspension of global logistics and energy chains, if it becomes a prolonged disruption, will lead central banks to tighten monetary policy.
Alongside greater pressure on construction and refurbishment costs, there may be a significant rise in Euribor rates, worsening the costs of access to housing credit.
So far, the European Central Bank has demonstrated assertive prudence regarding the lasting nature of inflationary tensions and in the face of nervousness in the financial markets. Inflation and rising interest rates in a context of low economic growth do not bode well. But while the unemployment rate remains at low levels, demand should remain dynamic, despite the pressure on buyers’ “effort rates”.
Interest should persist, but decision times are expected to increase and reveal greater fluctuation between the “asking price” and the actual sale value.
Portugal and international buyers
Portugal as a destination still has enormous growth potential in attracting foreign buyers in the premium, luxury and ultra-luxury segments, if there is capacity to produce products aimed at these segments on a global scale.
There is still much to be done in the field of construction and refurbishment of properties for buyers in these demanding market niches. There are international investors looking for alternatives to Middle Eastern markets.
Real estate Darwinism
Still widely discussed here are the concentrations of operations that took place in the North American market: Anywhere (C21, ERA, Sotheby’s, Coldwell Banker, Corcoran) and Compass, RE/MAX and Real, EXP and NextHome, Zillow and realtor.com, Rocket and Redfin.
In a short space of time, two of the most digital real estate companies in the USA bought the sector’s “giants”, a fully virtual brokerage bought a network of estate agencies, the property portals Zillow and realtor.com joined forces, and the largest mortgage platform Rocket bought the property portal Redfin. It is the principle of real estate Darwinism, the survival of the fittest, where the fittest are those who adapt best.
In Portugal, for now, nothing changes. But the “evolutionary environment” is changing and, when it changes, many operators cease to be adapted and do not survive.
The sluggish state
As for the public bodies on which the property sector depends, “everything remains the same as the sluggish snail”.
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