Strong lettings demand continues in Portugal

The National Price balance moved from -70 to -66, while the National Confidence index improved slightly, from -60 to -52.

With new vendor instructions continuing to fall (supply), house price declines are being driven primarily by anaemic demand.

Interestingly, until September, existing home prices had been falling faster than new home prices. However, the last two months have shown developers becoming less resilient to the fall in house prices. December’s survey actually shows new house prices falling at a faster rate than existing homes.

Turning to the lettings market, tenant demand continued to rise, as did new landlord instructions. Lettings expectations recorded a sharp jump and remains firmly in positive territory. Rents remained negative, with a reading consistent with falling rental levels.

Rental expectations, while still falling, did so at a much slower rate in December. Indeed, outside Lisbon rental expectations are broadly stable (in Porto and Algarve). Lettings volume expectations are also the highest in Porto and the Algarve.

Developers seem more optimistic than agents in their outlook for the sales market, with developers recording broadly stable sales expectations in the coming quarter as opposed to falling sales expectations for agents.

Ci Spokesperson, Ricardo Guimaraes said: "There is a large consensus among the survey respondents that banks are increasing the spreads on new residential loans. This is hindering transactions, particularly highly leveraged loans. On the other hand, some agents note that there is increased transaction activity from investors, who are benefiting from price reductions and a strong lettings market."

RICS Senior Economist, Josh Miller said: "The deteriorating macro-economic picture is still hurting home sales. Indeed, the latest labour market figures show the unemployment rate continuing to rise and currently stands at 13.2%. The weak labour market and uncertain economic outlook in Portugal is forcing potential homeowners into the lettings market, which is showing robust demand and strong transaction expectations. We expect this to continue into 2012, as mortgage finance also remains constrained."

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