If there is one sector of Portugal’s economy that seems impervious to the climate of growing economic uncertainty and unpredictability because of geopolitical shocks and rising inflation, it is Portugal’s property sector. With average house prices rising 18.7% in 2022, and overseas agents warning of a housing slowdown, the market can’t just keep growing, can it? Essential Business spoke with the president of the Portuguese Association of Estate Agencies and Professionals (APEMIP), Paulo Caiado.
In 2012, Portugal’s housing market wasn’t really moving. In line with the rest of the economy after the country’s credit rating was labelled ‘junk’ status by international ratings agencies, forcing the government to go cap in hand to an international troika of lenders, the appetite to buy and sell was anaemic.
That year, the then centre-right coalition PSD/CDS-PP government led by Pedro Passos Coelho launched an investment attraction programme that offered residency status for non-EU nationals. The hope was that it would attract entrepreneurs to open businesses, invest in Portuguese businesses and employ staff as jobless figures hit 17%.
That didn’t work. However, one of the options of the Authorisation of Residency through Investment Activity (ARI), which required a more reasonable €500,000 property investment, did. While symbolic – the programme has attracted just over €6 billion over 10 years –, it did send out a message that Portugal was open for business and triggered a momentum of overseas relocators, some on the back of the Golden Visa, as the ARI was dubbed, others through redesigned tax regimes such as the Non-Habitual Resident (NHR) scheme.
Articles circulated in the world’s press; journalists who flew in to cover Portugal’s sovereign debt crisis were enchanted with Portugal’s shabby chic image and picture-postcard towns and, over the next decade, both the tourists and the overseas house-hunters poured in, snapping up properties for a song.
Without a doubt, the Golden Visa programme kick-started a moribund housing market, with out-of-work estate agents, lawyers, surveyors, accountants, painters and decorators, small-time builders and big international developers suddenly having more work than they could actually take on.
The scheme inadvertently began the regeneration of Lisbon and Porto’s run-down city centres, and this fanned out to historic medieval and baroque cities up and down Portugal. After being the sick man of Europe, Portugal had finally arrived, and all triggered by a small piece of plastic the size of a credit card, and that recovery began with Portugal’s residential housing market.
But there were predictable, if unintended side-effects. Urban housing stocks, which hadn’t grown significantly since the late 1980s and early 1990s, ran out, scarcity fuelled demand, and demand drove up prices. The result was a bombshell dropped by the government in February with a Housing Pact which aimed to alleviate the problem of the lack of affordable housing in urban centres, but, apart from tenants’ associations, the measures proposed pleased no one.
But house prices continue to rise in sunny Portugal, when in the UK and in Northern European countries like Sweden, the winter Arctic winds of war and inflation have frozen the market. But is the sector that helped save the Portuguese economy from 2012 now about to come tumbling down from over-speculation? Paulo Caiado thinks it highly unlikely.
“The increase in property prices has to do with lack of product on the market and I don’t see any significant change that would bring prices down, so our members don’t see any relevant change. Despite the increases we’ve seen, the truth is that, in overall terms, house prices are a lot less than those in other European countries. Prices in Lisbon and Porto are much lower than in other European cities,” explains Paulo Caiado.
Photo: APEMIP
Controversial proposals
The government’s announcement of a raft of measures to fix Portugal’s housing crisis by the forced appropriation of properties that have been standing empty for over a year, with now connected utilities, for rental has been accused as an attack on private property rights by sector associations, but APEMIP has been guarded in its criticisms and evaluation.
“We think it is still too early to evaluate the effectiveness of these measures which, if adopted, should significantly help those who really need access to decent housing. At the same time, measures aimed at stimulating the supply of residential properties would have a significant effect, like speeding up licensing, making more parcels of land available for new build, creating tax incentives for construction, which would all be welcome measures.”
However, a growing chorus of voices says that the speculation fuelled by a lack of properties and an influx of affluent European relocators and nationals from Brazil, the United States, China and the Middle East has driven up prices to such an extent (finding a two-bedroom flat in Lisbon for under €350,000 is almost impossible) that the Portuguese middle class has been pushed out of the market, with calls on the government to introduce Canada-style housing market restrictions.
As of January 1, 2023, foreign buyers are banned from buying homes in Canada for two years under the Prohibition on the Purchase of Residential Property by Non-Canadians Act. The ban was passed in June 2022, but only came into effect in January.
“Introducing an act like the Canadian one just wouldn’t make sense. Overseas investors have created some demand and put pressure on the high-end segments of the housing market, which has no social impact or consequence whatsoever,” says Paulo Caiado.
The announcement by the government that it would scrap the property investment option of the Golden Visa and phase out the programme altogether has perplexed real estate associations, who can’t understand why an investment instrument that brought in €6 billion of investment and created so many direct and indirect jobs was to be terminated.
In truth, the Portuguese authorities came under increasing pressure from the European Council, who suspected that up to 40% of the visas were granted on the back of money laundering, especially in Malta and Cyprus, the latter of which had been selling passports for cash to wealthy Russian oligarchs.
“These measures and programmes have been highly relevant for Portugal’s economy,” Paulo Caiado says, dismissing ideas that they have fuelled speculation. In a decade, the Golden Visa represented 0.6% of transactions in Portugal, yet during that period, it has brought in nearly €7 billion. The impact of this investment goes far beyond direct investment in property; it has made a consistent and very considerable contribution to Portugal’s economy,” says the APEMIP president.
“One annual tax would be simpler”
Property industry associations have long argued that the number of regular and surcharge taxes on properties has been one of the impediments to housing development in Portugal. One of the main real estate taxes in Portugal is the Municipal Tax on Onerous Real Estate Transactions (IMT), which is due to the state whenever a house is bought. This is calculated based either on the value of the property for tax purposes, or the amount that is declared at the time of the purchase, depending on which is higher.
Another is stamp duty, which is based on the amount stated on the deed. The buyer must pay a transaction tax of 0.8% at the signing of the deed.
Besides the taxes paid at the time of the purchase, there is a tax paid every year for as long as the proprietor owns the property, which is the municipal property tax (IMI). The IMI rates are set annually by the council where the real estate is located. In cases of urban buildings, the rate can vary between 0.3% and 0.45%. The rate can climb to 0.5% in the case of municipalities that are included in the local economy support programme, whereas with rustic buildings the rate is 0.8%.
Real estate worth over €600,000 is subject to AIMI (a municipal surcharge or wealth tax), which on average is 0.7% of the value of the property.
“Like in other European countries, having one annual tax would be a much simpler regime and stimulate the turnover of property transactions,” says Paulo Caiado.
In common with the rest of the Eurozone, interest rates set by the European Central Bank and enforced by Member State central banks have been consistently rising in Portugal with an effect on mortgages. But how far is this a problem for homeowners with mortgages in Portugal? Does APEMIP foresee rates coming down anytime soon, and is a wave of mortgage defaults like in 2011-2014 likely?
“The increase in interest rates is worrying, especially for families who have bought their homes over the past three years and have borrowed to their limit. Measures implemented by the government to enable mortgage holders to renegotiate conditions with the banks will relieve the situation and avoid defaults. On the other hand, the number of mortgages being renegotiated isn’t as high that it would cause market jitters,” assures the APEMIP president.
Seeking members
APEMIP has been very eager to attract more estate agents to not only be members but also play a more active part in the association. The profile of the estate agent is changing, becoming more respected as a profession rather than a job.
Paulo Caiado says that competition between estate agents has become more intense and, as a consequence, we have clients that are more demanding, estate agents that are better trained and some that are very successful.
The business has also changed with the advent of new technologies over the past few years, with virtual house viewings, sometimes using drones for exterior and aerial views, and clients starting their house-hunting online on sites that, through AI, enable rapid, broad property searches and custom filtering.
“Technology has brought very significant changes to our activity, in the way they are marketed, in administrative processes, and particularly how they are advertised on sites and social media. It is vital that estate agents know how to use these technologies, which can enhance performance,” explains Paulo Caiado.
Americans ‘discover’ Portugal
Over the past three years, there has been an uptick in the number of US citizens moving to Portugal (the number has tripled in 10 years to nearly 7,000) and they are often bewildered, if not shocked, that Portugal has no Multiple Listing Service. Is this likely to be introduced here?
Although Paulo Caiado thinks it would undoubtedly be interesting, it would, however, result in the mainstreaming and standardisation of the practice of soliciting properties under a sole agent regime, which we don’t have in Portugal.
In Portugal, estate agents are not technically supposed to represent the buyer and seller, but this frequently happens. The emphasis is always on finding the buyer and the seller, and closing the deals. Therefore, the seller needs to make sure that they are being properly represented when the situation occurs. Does APEMIP think more could be done to prevent such cases?
“Brokerage is regulated by a law that clearly sets out the responsibilities and obligations of estate agencies and property agents. Current legislation does not establish any kind of restriction on an estate agent representing the buyer and the seller at the same time,” says the APEMIP president.
Also, an agent needs no licence other than an umbrella licence from the brokerage house to sell real estate. The agent also doesn’t have to have formal training and often works part-time. How is APEMIP encouraging greater professionalism in the market?
The association aims to stimulate competitiveness between brokers based on their level of training and preparation and, at the same time, thinks that clients should be made aware of the need to employ the services of estate agents with suitable training.
The APEMIP training academy provides almost daily training courses in diverse areas, which are vital at a professional level and in turning out professional estate agents.
The prospects for 2023
Portugal’s luxury market has performed consistently well over the past seven years, with developments springing up all over the country, particularly in Greater Lisbon (house values up +15% in 2021), Cascais, Estoril, and Comporta (+7.6% in 2021 and +1.9% so far this year).
During the first three quarters of 2022, the total number of housing transactions in Portugal rose by +8% year-on-year to 129,374 units, while transaction value increased 22.9% year-on-year to €24.42 billion, according to INE. However, the new-build market has not done as well, with new construction up 1.6% in 2022 on 2021 (around €5 billion), according to the Global Property Guide.
Paulo Caiado points to a problem that has been well known in the residential market for some time, which is the lack of supply, particularly new properties aimed at Portugal’s middle and lower-middle classes and at affordable prices. “We’ve got no lack of potential clients interested in these segments, and we’ll probably see an increase in supply in those segments where there has been a lack affordable housing.”
There is strong debate whether it is a government’s job to provide affordable housing and that this should be the realm of the private sector, and there are developers in the market who have argued that the Portuguese government is cash-strapped and simply doesn’t have money to meet affordable housing demand that developers can’t make money on due to high taxes and the rising costs of raw materials and energy.
This was expressed by José Carlos Botelho, CEO of Vanguard Properties, luxury real estate developer in Portugal, and Anthony Lanier, founder of EastBanc, which has had several real estate neighbourhood regeneration projects over the past decade. It’s simply not profitable, they say.
Nevertheless, the Portuguese government is making inroads into tackling the problem with funds from the Portugal RRP (Recovery and Resilience Programme) with €2.733 billion for housing through its ‘Programme of support for access to housing’, with an allocation of €1.211 billion, while Lisbon City Council has earmarked some €343 million from the RRP, until 2026, to intervene in housing, with the majority of the budget allocated to construction.
Paulo Caiado says that the sums allocated from the RRP are very important for increasing affordable supply, however, “we’re a bit apprehensive in how it will be effectively achieved given the lack of manpower and resources in the construction area”.
Another path taken by the government to alleviate Portugal’s chronic housing shortage is to provide more properties for rental, whether through new-build, renovation, or even compulsory appropriation from private owners who have left their properties standing empty for long spells of time. But this is in a market which, unlike France or Italy, has always been more geared to home ownership rather than rental, with a population that doesn’t see the point of paying rents almost as high as mortgages, and then having nothing to show for it at the end of 30 years.
Paulo Caiado says that this is down to Portugal’s more recent democratic history since 1974, after which rents were frozen at a peppercorn rate, making it impossible for landlords to cover maintenance costs, resulting in “making it difficult to rent out a property in terms of demand and even less so in terms of supply. Until 1998, there was a strong policy to encourage people to buy their own homes through low-interest mortgages. The result was that 73% of Portuguese families own their own homes”.
To wind up our interview with Paulo Caiado, the President of the Portuguese Association of Real Estate Agencies and Professionals (APEMIP), we asked him what he wanted to achieve during his presidency.
“The portal CasaYes, the continued professionalisation of the estate agency business and its brokers, creating more and stronger links between APEMIP and estate agencies and brokers are the main goals for our association,” he concludes.
Interview by Chris Graeme, Editor of Essential Business
By CHRIS GRAEME
