Real Estate Development: Confidence Remains but Challenges Abound
As the world navigates a post-pandemic recovery, geopolitical and economic landscapes are shifting once again. The war in Ukraine has driven inflation up and accelerated the anticipated rise in interest rates. In the real estate sector, increasing construction costs, labor shortages, and material scarcities pose significant threats to stability, introducing new challenges to an industry known for its resilience.
Despite these hurdles, confidence in the real estate development market remains steady, though long-term and medium-term forecasts are difficult to make. What does the future hold? Insights from industry professionals offer some clarity.
Impact of War and Economic Conditions on Real Estate
The uncertainty caused by the war, rising inflation, expected increases in interest rates, and the scarcity and rising costs of raw materials have not deterred developers. They still see real estate as a sound investment and a crucial driver of the national economy, albeit under challenging conditions.
Pedro Vicente of Habitat Invest notes the industry’s historical resilience but acknowledges the current challenges, particularly the sustained rise in housing prices, which is difficult to control due to price uncertainties. Luís Gamboa of Vic Properties highlights the impact of construction costs on real estate development and sales prices, while Paula Fernandes of RAR Imobiliária emphasizes the public’s insecurity about buying homes amid these economic conditions.
João Sousa of JPS Group points out that rising prices will continue to limit access to homeownership for the middle and lower-middle classes due to the persistent supply-demand imbalance.
Risk of Project Delays and Cancellations
Miguel Cabrita Matias of Mexto Property Investment mentions that the risk of project delays or cancellations is always present, even without crises. The current situation exacerbates these issues, particularly for financially weaker developers. José Cardoso Botelho of Vanguard Properties notes that larger construction companies tend to favor long-term partners, potentially disadvantaging short-term operators.
Increased costs for materials, labor, and logistics, driven by the conflict in Eastern Europe, will likely impact project costs in the short and medium term, according to Bruno Ferreira da Silva of Bondstone. Projects in early stages will need compromises between builders and developers, while more advanced projects will see a reduced impact.
Continued Introduction of New Homes
Despite the ongoing supply shortage, new homes will continue to enter the market. Luís Gamboa stresses the significant deficit between housing supply and demand. Bruno Ferreira da Silva adds that the pace of new home introductions will be less than ideal due to delays in licensing and rising construction costs, which will lead to an overvaluation of existing properties.
Paula Fernandes argues that the national market may struggle to meet demand due to limited resources, though international interest in Portuguese real estate remains strong.
The Persistent Issue of Middle-Class Housing
Housing supply in Portugal has stagnated over the past decade, increasing by just 1% from 2011 to 2021. This is particularly problematic for the middle class, which has long faced a housing shortage. João Sousa highlights excessive taxes and bureaucracy as major obstacles. Miguel Cabrita Matias calls for substantial government support to address this issue, noting that taxes significantly increase construction costs.
Foreign Investment in Portugal
Foreign investment in Portuguese real estate remains strong, but vigilance is necessary. Sónia Santos of Solyd reports continued interest from international buyers, though legislative and fiscal instability poses risks. José Cardoso Botelho warns that delays in licensing and high taxes could drive away foreign investors, exacerbating the supply shortage.
While foreign demand boosts the economy, Pedro Vicente expresses concern about its inflationary impact on the limited housing supply, even as it brings economic growth.
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