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Portugal: Anything Left in the Property Market?



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By : Inga Kilikeviciene    99 or more times read
Despite of a discouraging dynamics line in some segments, the property market in Portugal is in an advanced development stage distinguishing two main characteristics: quality in every sector equaling to the main European markets and a demand and presence of foreign developers.

Portugal continues a well-established, highly professional real estate fund industry, managed by financial institutions and independent managers. A number of well-known investment funds, such as Rockspring, Scottish Widows, Pillar Retail Europark Fund (PREF), Deka Immobilien, to name a few, invest their assets in the Portuguese real estate. The presence of foreign developers and international consulting companies contributes for high transparency levels of the commercial real estate market in the country.

As the real estate sector is essential for the country’s economy, the legal and tax regimes are designed to attract more investors and thus, are particularly favourable. Direct investment in local property benefits from local property taxes and transfer taxes exemptions. No wonder that national real estate investment funds have seen their development curve in almost constant inclination in the past decades.

So what will the best segments be for an investment in real estate? One of the possible options certainly is offices for rent, particularly in Lisbon. Lisbon has been distinguished as the 2nd best place in terms of value for money in office space among European cities and the 1st best city in the world for Congresses and Fairs. Naturally, the city is growing and attracts more and more businesses to establish their offices in the capital of Portugal. Therefore, this particular segment has always been and continue growing, varying between 3% and 2% of annual increase.

According to Cushman & Wakefield and Uría Menéndez, the highest volume of the office space demand in Lisbon and its outskirts was reached in 2008 and represented 240 thousand square meters of the rented area. However, under influence of the financial and economic crisis the market was squeezed up to the 2003 levels. Such stability guarantees minor risk of investments. Prime rental prices were registered of EUR 18.5 per square meter in the end of the first quarter last year.

However, retail real estate market is not that much reliable. There are periods where demand soars up but such situations are not consistent. With the boom of new constructions in the past decade, the market seems to be nearly saturated. Surely, new constructions in retail happen, like the new store AKI of Leroy Merlin with 3,000 square meters in Montijo; Lisbon neighbourhood, opened just couple months ago, but mostly developers face the option of reconstruction or refurbishing the old retail centres rather building projects.

Commercial property apart, the picture might gain gloomy colours. The operators of the residential property market are pessimistic about the perspectives for future. This results from a combination of declining demand and increasing offer.

As Royal Institution of Chartered Surveyors, UK, outline in their Portuguese Housing Market Survey for November, 2010, house prices now fall faster in the previously buoying regions, the interest in buying is further declining and the number of owners interested in selling is increasing. This declination in buying requests and increase in selling offers leads to little optimistic predictions in terms of both prices and sales volumes.

The Survey also reveals that promoting agencies are slightly more optimistic than real estate agents. This shows the difference between new and second-hand housing markets, in favour of the new homes.

Indeed, Portuguese Real Estate Professionals and Brokers Association (APEMIP) referred that home prices fell up to 8% last year. Facing the current economical situation in Portugal and restrictions on bank loans, families were hesitant to invest in their homes. Even if during the first semester of 2010 more houses were bought in comparison with the same period in 2009, the dynamics turned critically down in the second half of the year.

Nevertheless, the housing market closed the 2010 with sales of ca. 139,500 houses, while there were 150,000 transactions registered in 2009, a reduction of 12% in comparison with 2008.

For those having cash savings this is a good time to look around. But in general, as elsewhere, the market operators are looking for overall economic recovery, with more jobs, more income, better purchase power and thus, recovery of confidence in the property market.
About the Author: Inga holds a degree in Law Science and runs a small consulting company in Lisbon, Portugal, providing business support and legal advice services for foreign entities and individuals. Inga dedicated five years to real estate promotion.
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