It has been 15 years since there were so few houses to buy in Portugal: at the end of 2022 there were about 47,200 dwellings available to change owners. But demand is strong
Barrier 1: The licensing
Between the moment of deciding to build a property and the end of the construction work, years can pass. And bureaucracy hurts, taking away real estate developers’ willingness to invest.
“The licensing processes are slow and can be the Achilles heel of real estate development,” says Bento Aires, president of the Order of Engineers – Northern Region (OERN).
And, for this reason, he makes a suggestion: “It’s necessary that the city councils simplify the processes or start developing previous licensing studies to encourage private companies.
While the projects are wandering around the town halls, the viability of an investment can be strongly compromised. Just look at the example of the last year, when the war and inflation caused the prices of construction materials to skyrocket.
“The market works in long cycles. From the moment you realize that there is a lack of supply to construction can be a long time. The biggest obstacle to activity is bureaucracy and licensing,” reinforces Ricardo Guimarães, director of Confidencial Imobiliário.
And the State, even in its own cause, is to blame, remarks civil engineer Carlos Mineiro Aires: “In the housing that the State promotes, everything is done through public contracting. There’s a bureaucratic web and litigation. Just one adjudication can take a year if it is contested by one of the bidders.
Barrier 2: The profit margin
Many of the real estate projects that have emerged in recent years are aimed at the high-end or luxury segment. And there’s a reason for that: the profit margin is more attractive to real estate developers. “If they are private investors, they don’t invest in the middle segment because the profit margin is small”, summarizes Carlos Mineiro Aires.
But even in the developments aimed at the middle class, the demand is very intense. “The ones that come to the market sell very fast. There are many signs that confirm the lack of supply”, says Ricardo Guimarães.
Another question: but if there is middle class in demand, with a lot of intensity, why isn’t it being built for this segment? The answer is in the next barrier.
Barrier 3: The context of uncertainty
There are several factors fueling the uncertainty experienced in the real estate industry. The lack of labor, combined with the growth in prices and scarcity of construction materials, makes the cost of a construction project more expensive: “There have been many cycles of shock and tension that investors face and are afraid of. Real estate development is a risky activity,” insists Ricardo Guimarães.
But there’s another determining factor: with rising interest rates, tighter bank financing rules, and the loss of purchasing power, it’s becoming more and more difficult for families to buy a home. “Today it’s not certain that a middle class family will be able to get financing and buy a house at the current prices”, Bento Aires reinforces.
With this scenario of doubt, there’s another aspect to consider: those who have a house and were thinking of putting it up for sale, think twice, ending up also shrinking the offer.
“It’s to be expected that owners who were hoping to sell their property at this time will shy away. Because, at the same time, the income and valuation that real estate has are one of the few safe ways to fight the effect of inflation,” adds Ricardo Guimarães.
Barrier 4: Small buildings
The principle of economy of scale dictates that the larger the production, the lower the average price. And in real estate construction, it can also exist. In Portugal, most buildings have few floors and few apartments per floor. And this makes the investment less attractive.
Ricardo Guimarães, from Confidencial Imobiliário, reminds us that “in Portugal we don’t have a high construction culture” and that the “density of construction contributes to the reduction of the construction cost”. In other words, larger buildings could allow cheaper housing.
“Densification has to be done very carefully, but it is certainly one of the ways to meet the need for cheaper buildings,” he concludes.
