Opportunities are like the sunrise...

The bad part is that you were probably the only one responsible. The good part is that in life all mistakes have an advantage: they serve as a lesson :)

We live in troubled times. The doubt has been present for 2 years:

"Is this the right time to realize that dream I've been chasing for a long time? Buying a house with a garden, leisure areas or even a swimming pool?

Should I wait even longer? It could be that the crisis that all inflations always bring creates new opportunities... It could be that someone has an urgency to sell and agrees to lower the sales price... It could be that someone gets tired of waiting for their home to sell and reduces the price... Maybe the market will "burst the bubble" and prices will go down..."

And so on... These are the hesitations that prevent you from deciding and the next thing you know, the Sun has already set and the dream of that day is over. Then all he can do is regret the lost opportunity.

The world changed

First it was the pandemic, now the war in Ukraine. At least in one prediction there is almost unanimity: inflation is here to stay! Inflation in construction costs, inflation in decoration materials, inflation in services and, consequently, an increase in the sales prices of new and used homes.

Why? Because the world has changed. The globalization of the economy, which contributed to lowering the prices of raw materials and consumer goods, has a compromised future. The reality of the new World is shaped in regional blocks. Doubt and distrust are here to stay. From now on, producing in Europe will be more expensive, in this situation in which trade relations with Russia or even Asia (components crisis) have been compromised. The costs of producing locally are higher, but they are a safer option for companies. Energy costs will tend to rise. It will still take time until the West is able to replace imports of goods and energy with more economical local alternatives, as a result of productivity gains.

In the graph above, the growth in construction costs is clearly visible through the year-on-year variation in the New Housing Construction Cost Index , compared to the previous year. Since March 2021 the rate has skyrocketed. And the cause is not just the inflation of construction materials (affected by rising energy costs and the scarcity of raw materials), labor costs have also grown, as there is currently a huge shortage of human resources in this sector.

Conclusion: the brutal inflation that has affected the cost of building new homes since last year due to the pandemic, not only has not ended, but is also likely to get worse . This worsening will be felt even more in small-scale construction, as is the case with houses. The same impact will occur when renovating used homes.

Demand and Supply

As we all know, this is the law that governs price dynamics in the real estate market. Now, in addition to the predictable stagnation in the supply of new homes, there is also the growing demand for homes in Portugal by foreigners or Portuguese people who reside outside of Portugal and who, thanks to teleworking, look for countries with the lifestyle that Portugal has to offer, continuing working remotely. The same applies to retirees.

Cheaper cost of living, security, mild climate, quality infrastructure and services, good hospitality... in short, the quality of life that we are proud to offer, despite our financial inability to enjoy it ;)

Not even the end of Visa Gold stopped demand. On the one hand, Portugal continues to be a very attractive country in terms of granting visas to most nationalities and on the other, many Europeans already know Portugal through tourism promotion and continue to decide to move to our country.

This is the main reason for the appreciation of the real estate market recorded in the last 7 years, foreign buyers or expatriates have much greater purchasing power than national buyers.

Buying a house, dream or nightmare?

If in recent years, the recovery of the new construction real estate market created opportunities for those who wanted to sell their used home and buy a new one (or one in the project phase) and still benefit from the exchange, know that that time has come to an end. Inflation and the scarcity of urban land will make this asset increasingly scarce and therefore more expensive.

The difference between the sales price of a new home and a used home will increase. This is already happening and is inevitable.

On the other hand, the shortage of supply in the used homes market, combined with and "towed" by price growth in the new homes market, will push all sales prices up, whether used or new. As long as there is demand - and it has not dropped even during the pandemic - used home prices will not fall.

On the other hand , access to housing credit will become even more difficult. The Banco de Portugal's instructions, in line with the ECB's recommendations, will condition the value of the loan, which will be limited to 70% of the value of the property to be mortgaged. In addition to this limitation, restrictions regarding the effort rate of beneficiaries and their age will make access to this type of credit even more difficult.

Therefore, faced with this scenario, many Portuguese people who dreamed of living in a house, preferably a new one, are at risk of having to abandon that dream , especially because proportional income increases in the middle class are not expected.

Offers in the real estate market will continue to disappear quickly or rise in price, especially in areas where demand continues to grow.

Conclusion: Opportunities are like the Sunrise, if you wait too long you will miss them.