The uncertainty of the Portuguese real estate recovery – ABBC

The Portuguese real estate market is going through an obvious period of stagnation, caused by the financial crisis, which has rapidly spread to real estate promotion, sales and purchases.

The sudden and strong reduction of the credit available to house buyers – either as a freehold or secondary dwelling – has generated a paralysis, with the banks maintaining only financing contracts in progress or already approved. This immobilisation has also spread to the office, warehouse and trade sectors. In short, real estate marketing has dropped sharply with the number of operations reaching almost zero.

El mercado inmobiliario portugués está atravesando un período de estancamiento, que se ha extendido rápidamente a la promoción y la compraventa de inmuebles, dice Luís Filipe Carvalho de ABBC. Sin embargo, y a pesar de los recientes signos positivos, todavía existe la duda de si estos signos son de carácter estructural o cíclico, pudiendo impedir la tan necesaria recuperación.

The clampdown on bank credit has also been felt at the real estate promotion level, in which the banking sector has merely maintained, even with difficulty, already approved ongoing financing and, in quite exceptional cases, the financing processes that had already been approved.

The extraordinary difficulties in obtaining these different types of credit has generated a ´lock-up’ in real estate, with the consequent freezing of small, medium and large projects.

For the first time the financial and real estate crisis has intersected creating difficulties to an extent never before seen. Recent months have been a virtual desert in which only projects begun before August 2008 are being concluded, namely in building terms.

On the other hand, purchasing and sales, partnerships, project-finance, the incorporation of funds and the expansion of asset portfolios has also gone through a strong cooling process, which has inevitably been mirrored in the decrease of legal services across the sector.

Added to all this is the strong exposure of the Portuguese market to foreign investors, notably Irish funds in the tourism area, English funds in the retail area and of Spanish investors in the housing, office and even agricultural sectors.

This stagnation period in the real estate market imposed a reduction of legal services in projects realisation or development, real estate promotion, purchases and sales.

Arguably such developments have prompted an increased demand for consultation on real estate management, rental and on reducing financial exposure and creating added value for the future. On the other hand, the demand for solid assets has increased by those with liquidity. With demand strongly affected offer price reductions have in many cases reached 30%.

This market atrophy and companies’ difficulties has also led to an increase in rent negotiations across the commercial and office sectors, but which have been well received by landlords (especially funds) who favoured maintaining tenants albeit with a reduced yield.

One positive effect has been a flourishing rental market as bank financing is largely closed for purchases. The Portuguese market, deeply marked in recent decades by the purchase of property by ownerresidents, needs such a development to create alternatives. It is regrettable that it has been brought about by such a severe crisis, when measures to encourage such diversification should have been strengthened before the crisis, and which could even have attenuated the effects now being felt.

One year after the beginning of this paralysis we are now starting to see some signs, very slight, of recovery, which are essential for the whole economic fabric of Portugal – where real estate represents one of the largest and most active business sectors.

The banking sector is gradually giving the first indications of a willingness to resume financing, for permanent consumption (especially freehold dwelling and offices), and thus starting to reposition itself towards the real estate market. Funds are also beginning to make efforts to realise what they have in their portfolios, starting to assess new projects which had previously been ‘mothballed’.

The doubt lies in knowing whether these signs are structural or merely cyclical thus preventing the start-up that is so badly needed. Let us hope that they are the first signs of a sustained economic recovery. Real estate developers are available, banks want it and the country needs it.

Luís Filipe Carvalho is a partner and Head of Real Estate at ABBC. He can be contacted via