29 December 2019
Due to reasons that are easy to understand, real estate is an important topic for everyone. These reasons are even more evident when we refer to the residential segment, since we are talking about the ceilings under which we live. But in recent years, talking about houses in Portugal is not just - as if this was not relevant enough - talking about basic needs, safety, convenience or quality of life. It is also talking about investment volume and the impact on national economy. And let's face it, it's talking about the sector that most of us fantasize about when it comes to making a profit. That is, it’s talking about house prices.
Everyone seems to have an opinion about the real estate market and the value of houses. If prices go down, stagnate or soar. If there is less or more demand. But in reality, what each of us tends to do when proclaiming such judgements is little more than generalizing a given interpretation based on a particular experience or perception. This article is intended to introduce the reader to some free indicators that can help form an opinion based on concrete data of broad universes.
Price indexes based on advertised values
Let’s begin by remembering something important that is often overlooked. When we talk about house prices we often refer to the value at which a given property is advertised. Probably because this is the value that is easiest for us to know, either by checking online or making a simple phone call. But objectively, while knowing that the asking price of a given property can give us a clear perception of the value for which it can be sold (and, for example, Idealista’s price guide fulfills this purpose), it does not answer the question “For how much was that house bought?” That is why any price index based on properties available for sale, will likely report values that are probably higher than those that are signed on the deed. Just to give you an idea of the degree of bias that we could be talking about – according to a study published in March by Confidencial Imobiliário (no English version available, sorry for that) – houses in the municipalities of Lisbon and Porto were being sold, respectively, 22% and 30% below the values initially requested by the owners.
The advantage of price indexes based on advertised values? At most, it allows us to work with real-time updated data. Through the same mechanisms that allow us, for example, when we see an ad in Casa Sapo, to immediately compare the price of a house and its m2, with the average values of a group of houses, with which the portal compares the property under analysis.
Price indexes based on transaction values
The IPHab (Housing Price Index) of the National Statistics Institute (INE) seems to be, by far, the most reliable and accurate of all indexes. It is true that initially this was a Price Index based on real estate appraisals. But the fact that these expert reports did not necessarily match market prices and that in 2012 the number of acquisitions using bank credit declined drastically, would severely condition the reliability and scope of the results. In this way, INE updated the protocol with the Tax and Customs Authority (AT) in the second half of 2012 and, since then, the values of transactions that appear in IPHab are calculated through the Municipal Property Transfer Tax (IMT), charged by AT to buyers at the time of purchase. Since the value of the IMT depends directly on the transaction value (except, of course, where exemption is granted), IPHab data reliably refers to the true values of the transactions.
It should be noted that some real estate companies operating in Portugal (the three largest for sure: RE/MAX, ERA and CENTURY 21) also aggregate results of real estate transactions promoted by them. But, as one can imagine, the scope of this data falls far short of the range and universality offered by the INE index.
Disadvantage of IPHab? It is available up to 85 days after the end of the index reference quarter. This means that the data published on 23rd December (the last update) refers, not to the present moment, but to the last quarter. This limitation will become more evident when, for example, in February or March 2020, data from Q3 2019 continues to be the most updated information of this index (the next report should be available on 23rd March of the following year).
Following these indicators is an essential exercise to understand the behavior of the real estate market. And, of course, to try to understand in what direction house prices in Portugal are going, at any given time and in certain geographical areas (I suggest you click here, you won't regret it).