The government of Portugal is experiencing difficulty in stopping the buying frenzy that has driven property prices to unprecedented levels, after attracting wealthy foreigners with investment incentives.
According to data from Idealista, the cost of homes in Lisbon surged 5.8% in November to a record €5,426 per m2, making it the second-largest increase in Europe, after Athens, which is currently the hottest property market among major European cities monitored by Bloomberg.
Residential property in Portugal's capital has become more expensive than in Milan, Madrid, and Berlin, with a nearly 30% increase in the past five years. This makes it difficult for most locals in Lisbon to purchase a new home and demonstrates how supply often overpowers interest rates in determining prices.
The government of Portugal has recently made some changes, including discontinuing the golden visa program and approving a plan to decrease tax incentives for new residents. However, despite these efforts to reduce demand, the country's warm climate and comparatively low prices continue to attract buyers, making the impact of the changes minimal. Although the end of the era of cheap money has reduced buying power throughout Europe, some cities are experiencing increased prices due to a shortage of available properties. Out of the ten markets tracked by the Bloomberg City Tracker, six are currently experiencing growth.
Bloomberg collects data from various providers to track the latest trends in the housing market across European cities. The figures include both official transactional data and indicative asking rates. Athens is experiencing a year-on-year increase of nearly 12%, while Stockholm has seen a consistent rise of over 5% for six consecutive months. Madrid and Milan are also recording steady price increases of over 3%. However, Paris has performed the weakest, with a more than 6% decline.
Lisbon was previously an unpopular area for real estate investment, with many outdated buildings. However, after an international bailout in 2014, the government removed rent controls and introduced the golden visa program. This allowed overseas buyers to invest €500,000 in property in exchange for residency and tax breaks. As a result, thousands of foreign investors flocked to Lisbon seeking good deals as the country recovered from the financial crisis.
One of these investors was Swiss billionaire Claude Berda, who founded French broadcaster AB Groupe. In 2016, Berda partnered with local investor Jose Cardoso Botelho to purchase their first piece of land in Lisbon. Together, they established Vanguard Properties, and since then, they have developed almost 12 residential buildings in the city, which has a population of around 500,000 people. The demand for these properties was so high that they often sold out even before construction was completed.
According to Cardoso Botelho, the lengthy wait times for construction licenses, which can be up to eight years for some plots of land, have caused a significant housing shortage in Lisbon. This red tape has left Vanguard with no units to sell next year after handing over 500 apartments in the last two months. Nearly half of these properties were purchased by foreign buyers.
Confidencial Imobiliario, an organization that gathers data on the property market, reported that in 2022, the number of available homes in Portugal reached its lowest point in 15 years. Portugal has one of the lowest percentages of social housing in the European Union, with just 2% of the total housing stock designated for this purpose.
The 2022 Property Index by Deloitte states that the average cost of a new home in Lisbon has surpassed that of Dublin and Brussels. This trend has resulted in many Portuguese families, who earn some of the lowest salaries in Western Europe, being unable to buy homes and instead opting for expensive and inadequate rentals in the distant suburbs.
The situation in Lisbon highlights the difficulty that governments face in regulating housing prices. While offering incentives can boost demand, it takes both time and money to increase the supply of housing, and an incorrect balance between the two can result in cycles of rapid growth and collapse.
There is growing concern that the current increase in prices could soon reverse. To cover the possible housing-related losses, Portugal's central bank has announced that lenders will need to create additional capital buffers. This was in response to a 22% drop in residential sales in Portugal during the first half of the year, according to real estate services provider Jones Lang LaSalle.
Due to skyrocketing rents and the lack of affordable of property, more Portuguese citizens are now living in precarious conditions. This growing inequality has led to tensions, with thousands protesting the housing crisis in Lisbon and other cities earlier this year, expressing their frustrations.
In response to this, Portugal's Socialist government has promised to increase the number of affordable homes and end incentives for foreigners. Outgoing Prime Minister Antonio Costa believes these programs were causing real estate speculation. However, it may not be easy to take Portugal off the market, given that foreign investors are drawn to the country's warm climate, stunning beaches, lifestyle, and relatively low cost of living, according to Pedro Coelho, CEO of real estate investment firm Square Asset Management.
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