Portugal’s property sector has been on a remarkable journey over the past decade. From the depths of economic uncertainty to becoming a global real estate hotspot, this sector has experienced unprecedented growth. Essential Business had the privilege of sitting down with Paulo Caiado, President of the Portuguese Association of Estate Agencies and Professionals (APEMIP), to delve into the factors behind this remarkable transformation and explore the challenges and opportunities on the horizon.

Cast your mind back to 2012, a year when Portugal’s housing market was stagnant, mirroring the broader economy’s struggles. The nation’s credit rating had been downgraded to ‘junk’ status, and the appetite for real estate transactions was feeble. However, this year marked the beginning of a significant change, thanks to an innovative investment attraction program introduced by the government.

This initiative offered residency status for non-EU nationals who invested in Portuguese real estate, with a reasonable €500,000 property investment requirement. Though the program attracted just over €6 billion over a decade, it sent a clear message that Portugal was open for business. This sparked a wave of overseas interest, thanks in part to programs like the Golden Visa and the Non-Habitual Resident (NHR) scheme.

The Golden Visa program, in particular, played a pivotal role in revitalizing the housing market, providing work for estate agents, lawyers, accountants, and construction professionals. It unintentionally kick-started the rejuvenation of Lisbon and Porto’s city centers, triggering a broader revival of historic cities throughout Portugal. Portugal had transformed from the “sick man of Europe” to a thriving real estate destination, all catalyzed by a small piece of plastic – the Golden Visa.

However, this surge in demand resulted in a scarcity of urban housing stocks, which had barely grown since the late 1980s. Limited supply fueled demand and, in turn, drove up property prices. This situation led to the government’s introduction of a Housing Pact in February, aiming to address the lack of affordable housing in urban centers. While it addressed some concerns, it failed to satisfy all stakeholders.

In 2022, Portugal witnessed a remarkable 18.7% increase in average house prices. Yet, amid geopolitical uncertainty and rising inflation, questions have arisen about the sustainability of this housing boom. Paulo Caiado, President of APEMIP, believes that the price surge is primarily due to a lack of available properties. He remains optimistic, stating that overall, house prices in Lisbon and Porto are still considerably lower than in many other European cities.

Foreign investors, particularly from affluent European nations, Brazil, the United States, China, and the Middle East, have played a significant role in driving up prices. However, this surge in prices has led to concerns about the affordability of housing for the Portuguese middle class. Calls for Canada-style housing market restrictions have emerged, but Paulo Caiado dismisses the idea, citing the positive impact of overseas investors on high-end property segments.

The decision by the government to scrap the property investment option of the Golden Visa and phase out the program has puzzled real estate associations. Critics argue that the program brought in substantial investment and jobs, benefiting the Portuguese economy. Paulo Caiado defends the program, highlighting its significant contribution to Portugal’s economic growth over the past decade.

The Portuguese property market grapples with various taxes, including the Municipal Tax on Onerous Real Estate Transactions (IMT) and stamp duty. An annual municipal property tax (IMI) and a municipal surcharge or wealth tax (AIMI) on properties worth over €600,000 add to the complexity. Streamlining these taxes into a simpler annual levy, similar to some other European countries, could stimulate property transactions.

With increasing interest rates set by the European Central Bank affecting mortgages, concerns have arisen about potential defaults. Paulo Caiado acknowledges the challenges faced by families who bought homes in the past few years but believes government measures to enable mortgage renegotiations will prevent a wave of defaults.

The real estate sector has evolved significantly with the advent of technology, offering virtual house viewings and advanced search tools. Paulo Caiado emphasizes the importance of estate agents staying abreast of these technologies to enhance their performance. APEMIP aims to promote competitiveness based on training and professionalism.

Addressing Portugal’s chronic housing shortage, particularly for the middle and lower-middle classes, remains a priority. Government initiatives, such as the Portugal RRP’s support for access to housing, are allocating funds to create affordable housing. However, challenges like manpower shortages in the construction sector need to be addressed to make these initiatives effective.

Portugal’s property sector has undergone a remarkable transformation in the past decade, fueled by foreign investment, innovative programs like the Golden Visa, and increased demand. Challenges persist, such as housing affordability and supply shortages, but the industry remains resilient. As Paulo Caiado continues his tenure at APEMIP, he seeks to professionalize the sector further and strengthen ties between the association and its members, ensuring that the Portuguese real estate market continues to thrive in 2023 and beyond.