Lisbon Market Snapshot Real Estate 2020
LISBON METROPOLITAN AREA
BUY, LEASE AND INVEST
2020 was marked by a very adverse context due to the COVID-19 pandemic that had a strong impact on the economy and the behavior of the population in general. The Lisbon real estate market has shown enormous resilience, contrary to the most pessimistic forecasts.
The price drop in Lisbon ended up being only 2.5%, and this drop has more to do with the reduction of transactions in the prime segment (higher prices) than the fall itself prices in the medium segment. In fact, in the medium segment, there were even price increases in many parishes of Lisbon.
Transaction volume fell by 17.7%, largely explained by the practically total confinement period of March and April 2020.
When we analyze the performance in terms of the parishes of Lisbon, it is clear that the main impact was in the historic area of Lisbon, where there is also the greatest offer in the prime segment. In the remaining parishes, particularly in the central, northern and eastern parts of the city, the performance was quite positive. The Lisbon Metropolitan Area, with the exception of the capital, also had a very positive performance, with an increase in the average price per m2 transacted by 6.2% and a drop of 10.9% in the volume of transactions.. span>
The average price per m2 fell by 4.4% in Lisbon and the volume of transactions fell by 5.6%. The drops were more pronounced and homogeneous, with a few rare exceptions (Beato, Santa Clara, Olivais, Penha de França and Ajuda). Demand remained very strong, which is a very positive indicator.
The average yield drent dropped by 0.1% to 4.3%, but in real terms, discounting Euribor-12, it is around 4.7%, a very healthy value for the residential market , and very appealing when compared to other European cities.
Type buyer profile
The market continues to be dominated by 3 large profiles of buyers, who buy to live, to invest or the prime segment. All are particularly price sensitive, for different reasons:
Move to Lisbon
At times, Portugal was considered and presented as the Florida of Europe, a paradise for pensioners, slogan which I consider very unhappy. This image of Florida and Portugal are both wrong. Florida today attracts much more than retirees, with Miami positioning itself as an important business center and the same happens with Lisbon.
Abstracting from the moment we live, conditioned by the COVID-19 pandemic, Lisbon is nowadays one of the most vibrant European capitals in Europe, and I would like to highlight 3 attributes in which the city stands out highlights:
Why do so many foreigners choose Lisbon to live? Names like Alicia Vikander and Michael Fassbender, Eric Cantona, Monica Bellucci, Isabelle Adjani, among others. Like these famous names, there is a growing community of global citizens who live in Lisbon and work for the world.
In the current context of mobility resulting from the greater adoption of remote work, Lisbon could benefit from establishing itself as a remote working platform on a global scale, having to create the infrastructures necessary to attract global talent in the areas of technology, design, digital marketing, fashion, etc., to settle in Lisbon.
In short, in my opinion, it is essential that we seek to motivate foreign buyers to invest in Lisbon for intrinsic reasons of quality and not just for conjunctural reasons related to tax benefits.
Trends for 2021
Real estate profitability
When we analyze the rates of return on residential real estate in the present decade, it can be seen that the yields from the lease have been decreasing very gradually from year to year, maintaining very close to 5%, while capital gains (property appreciation) have increased significantly since 2013, reaching a maximum of 30.8% in 2017, and correcting since then.
When we discount the Euribor-12 to the lease yields, it appears that the return has remained constant, having even increased by 0.1% in 2020, despite the drop in the sale price.
In order for the market to continue to show sustained growth, it is essential that the yields discounted from the Euribor-12 remain close to 4 to 5%, to sustain capital appreciation.
Interest rates are expected to remain in negative territory for quite some time, probably a few years. Unlike the previous debt crisis, which was essentially a crisis limited to a few countries (the PIGS), this is a global crisis, and it affects everyone equally. The current funding mechanisms with the repurchase of securities by the ECB are solidary, and therefore it is less likely that there will be pressure directed towards some countries in particular, as was the case with Portugal. That doesn’t mean it can’t happen, because naturally we were and continue to be in a more fragile situation than others, due to our structural situation.Interest rates are expected to remain in negative territory for quite some time, probably a few years. Unlike the previous debt crisis, which was essentially a crisis limited to a few countries (the PIGS), this is a global crisis, and it affects everyone equally. The current funding mechanisms with the repurchase of securities by the ECB are solidary, and therefore it is less likely that there will be pressure directed towards some countries in particular, as was the case with Portugal. It doesn’t mean that it can’t happen, because naturally we were and continue to be in a more fragile situation than others, due to our structural situation.
We must pay particular attention to the end of the moratoriums, scheduled for September this year. We know that Portuguese banks are the most exposed to credit in defaults, and we know that the tap remains open for housing credit. What will be the impact after the moratorium ends if some of these families are unable to pay the debt? Contrary to the previous period, there are now different mechanisms and the risk level of banks is also lower. Just remember that in 2007 many banks financed loans 100%. It would be too optimistic to think that we will not have a potential problem on the horizon. However, the dimension of the same and the real impact is not clear. In any case, we should not forget that the real estate market crisis broke out in the summer of 2007 in the US and Portugal only really felt it in 2009, and more intensely in 2011.
I believe it will be a year of adjustment of expectations but also the year of Lisbon’s rebirth, after the current pandemic crisis. Lisbon has been moving from the status of an emerging city to a safe bet, managing to compete side by side to attract investment, talent, expatriates and Portuguese families, who believe that this is probably one of the best cities in the world to live in.
It will be a market that tends to be dictated by the buyer, who will be more demanding and look for quality at a fair price. Foreign investment will continue to invest in Portugal for intrinsic reasons of quality and not conjunctural reasons (incentives such as the Golden Visa), foreigners will continue to want to come and live in Portugal, the Portuguese will continue to look for houses that are more adapted to their needs. Everyone will demand quality at fair prices.
Prices in Lisbon may undergo a slight adjustment of around 5%, on average. There will continue to be strong demand in the central and outer areas of the city, in particular, on the axis Campolide/São Domingos de Benfica/Alvalade/Areeiro, and Benfica/Carnide/Olivais/Marvila strong>.
International buyers will continue to be active looking for quality and exclusivity in the historic area of Lisbon, and I believe that there may be a recovery in the volume of transactions in the prime segment. span>
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The 8 questions:
- Are sales prices really going down?
- How did the lease behave?
- What is being sold the most?
- What are the selling prices?
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- Is it better to buy now or wait for prices to drop?
- Is it better to buy or lease?
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