Housing market

Looking at 2020 based on what happened in 2019

Precisely one week ago, I shared some statistical sources that refer to the volume and number of real estate transactions in Portugal and their values/m2. Now I will try to demonstrate, based on these same sources, how part of that information is crucial to try and understand what might happen in 2020.


by Falko Seidel

National data for Q3 2019: identical number of transactions, higher figures

According to the National Statistics Institute (INE), the Housing Price Index (IPHab) for the third quarter of 2019 increased by 1.2% over the previous quarter (which, compared to the first quarter of 2019, had grown by 3.2%) and 10.3% compared to Q3 2018. For more details I suggest you check the source itself. To me it is important to share with you the two facts that I find most interesting. The first is that these purchase and sale contracts generated 6.47 billion euros in house transactions, a record value in a single quarter in Portugal. The other concerns accumulated values: between January and September 2019 the properties sold in Portugal were only 24 short of those sold in the same period in 2018. Does it seem like a very short distance? I think this value will look even smaller if you realize that the figures are, respectively, 132.246 and 132.270 properties transacted.


Lisbon and its metropolitan area slow down

It is true that in the Lisbon Metropolitan Area (AML), the third quarter of 2019 registered, compared to the preceding three months, an increase of 4.6% and 7.3%, respectively, in the number and volume of transactions. But between January and September 2019 there were only 97.3% of the transactions registered in 2018, a year in which transactions represented 99.7% of the volume traded in 2019. Now I invite you to compare these almost imperceptible changes with the five successive increases in the number of annual transactions (between 11% and 31%) and the annual values ​​traded (between 21% and 34%) between 2013 and 2018. It makes you think, doesn't it? When the INE report that closes 2019's figures is published, on 23rd March, the result - unless an unpredictable behavior occurs in Q4 - should be clear: the real estate transactions in AML and their respective values appear to be stabilizing. And the values/m2? I have collected all available data from local Housing Price Statistics until the 2nd quarter of 2019. Please note, in the chart below, the evolution of the median price/m2 over the last quarters in Portugal, AML and Lisbon. One thing is certain: the signs point to stagnation of land cost in the capital in 2020.

Evolution of the median value per sq. m of dwellings sales in Lisbon, in LMA and in Portugal (€/sq.m)

source: INE

The values do not stagnate in bulk. What goes down and what goes up?

Between the second quarter of 2018 and the second quarter of 2019 (please check the table below) the median sale value/m2 of housing decreased in only one parish in Lisbon: Parque das Nações (-5.5%). But as you can verify on the same table, neighboring Marvila registered a record growth of 85%. It will probably seem difficult to believe, but this statistical aberration has, in essence, a seemingly simple justification: the Prata Riverside Village. A real estate project in the Marvila riverside area (600 meters from Fábrica do Braço de Prata), that plans to build about 500 houses, spread over 12 buildings (of which only one is inhabited and the other under construction).

The vast majority of the apartments have market values ​​between €500,000 and €1,500,000. In this way, Prata Riverside ends up influencing the value of that parish's soil in two ways. Through the transactions that are taking place there, at values​/m2 well above the local average. And through the impact that a prime, newsworthy real estate project - with the signature of Renzo Piano (author of the Georges Pompidou Center and winner of the Pritzker Prize), and the ambition to revolutionize that area of ​​the city - generates in the perception of the value/m2 of a parish that, until a few years ago, some of Lisbon´s citizens would have difficulty locating on the map. If you check this article published one year ago (unfortunately it is only available in Portuguese), you will realize that we are talking about a trend, not an isolated event.

And so that you understand how important it is to be aware of local dynamics, let me share the following curiosity: in the same table that you are now reading, but referring to the second quarter of 2018, Marvila was the only parish in Lisbon to present a negative annual variation in the average sales of houses (6.5%).

Median value per sq.m of dwellings sales (€/sq.m) and year-on-year growth rate (Q2 2019)

source: INE

And so that you understand how important it is to be aware of local dynamics, let me share the following curiosity: in the same table that you just read, but referring to the second quarter of 2018, Marvila was the only parish in Lisbon to present a negative annual variation in the average sales of houses (-6.5%).

What is the best strategy?

If you read the previous paragraphs carefully – and without prejudice of keeping up with macroeconomic indicators (such as interest rate developments or the industry's ability to meet existing house demands) – you will probably agree that good business will reside in the sensitivity and insight to understand local dynamics. In an early identification and understanding of positive phenomena (more infrastructures, better accessibility, larger variety of services) that almost always comes from more central, newsworthy and valuable areas to more peripheral, unknown and depreciated neighborhoods. Good deals will happen in these places. And they will happen there for a very simple reason: because in general, these are areas where there will be an expectation that life is (or will be) better than before. Because, ultimately, the square meter is essentially worth one thing: the ability to be (or make someone be) happy in a given place.

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