Portuguese property market still seeing price falls

Residential property prices and rents in Portugal are continuing to fall due to very weak demand, according to the latest housing market survey from the Royal Institution of Chartered Surveyors and Confidencial Immobiliario.

The index, which covers Lisbon, Porto and the Algarve, highlights the broad based weakness of the property sales markets alongside what appears to be the first signs of a slowdown in the lettings sector.

In the sales market, transactions and prices continued to decline. The national price net balance fell from -60 to -72. That means that 72% more respondents experienced price falls rather than rises.

It says that price declines continue to be driven by falling demand and rising supply is not an issue with new vendor instructions falling since December 2010 and no significant over building taking place in the run up to the crisis.

The report says that it is also noteworthy that residential developers, on the whole, are reporting less severe price declines than sales agents. This suggests the market for new build, whilst still under pressure, is holding up slightly better than for existing stock.

The national confidence index,  which is a composite measure based on price and sales expectations, rose by one point from -54 to -53, but remains fairly negative overall. 

The lettings sector, which until now has benefited from the fallout in the sales market given mortgage lending constraints, showed the first signs of a slowdown in activity.  Indeed, tenant demand fell slightly and new landlord instructions stabilised.

Transaction expectations also fell but they still remain positive but it is not clear if this marks a true reversal in trend or statistical noise is at this stage, but the fact the activity indicators deteriorated in tandem arguably suggests the risks are skewed to the downside. Rents meanwhile continue to fall and rental expectations turned more negative. 

In Portugal, house prices continue to fall due to very weak demand. Demand weakness, in turn, stems from a deteriorating labour market with the unemployment rate now standing at 16.3% and falling mortgage lending, said RICS senior economist, Josh Miller.

Given tight mortgage lending constraints, households had been turning to the rented sector over the last year, although this months results indicate the exodus from the sales market to the lettings sector may be coming to and end, he added.

CI spokesman, Ricardo Guimaraes said that some estate agents are naturally very pessimistic, especially due to banks distressed residential selling activity. But others are taking a more positive view on sales market developments in 2013, on the back of expected improvements in credit conditions, he added.