Lisbon’s Prime housing market in 2022: Highs and lows of a Real Estate Agent in an owners’ market
I’ve recently read an article in the Guardian in which the author debunked some assumptions about the Real Estate broker profession in New York’s rental market. One of the main assumptions mentioned was that the profession is very glamorous and is an easy way to make big financial gains without much effort, especially in the luxury market. The truth is, if we happen to be in a sellers' market, as is the case today, the situation appears substantially different from what is expected by the general public.
When reading this article, I couldn't help but notice the similarities with what is happening in the post-covid Portuguese market. With the start of the pandemic in 2020, which lead to quarantine and the closing of borders internationally, the Portuguese residential market shifted drastically. In fact, countless numbers of properties, once dedicated to short-term rental, were now listed as long-term properties – increasing the supply of the latter on the market. This pushed housing prices down, benefiting buyers/tenants but only momentarily. Then, at the end of 2021 and start of 2022, these dynamics shifted again with demand exceeding supply significantly and housing prices reaching all-time highs.
Anyone who has tried recently to look for a property to rent in Lisbon’s city center, certainly knows what I'm talking about. By this I am not referring to a ground floor with an interior bedroom in the Anjos neighborhood or a fourth floor studio without an elevator in Penha de França. If the reader wants to rent a prime apartment for his family in the center of Lisbon today, he will be faced with a true Odyssey that will be everything but Epic.
The market is once again on the side of the owners and it is expected to remain as such for a while, at least in the prime residential segment.
According to a study carried out by the Francisco Manuel dos Santos Foundation on the Portuguese real estate market, the majority of the Portuguese population favor purchasing a house over renting one. The figures for private property sales have in fact grown significantly since 2011 while rental figures have been decreasing for the same period – rental corresponding to only 19.9% of the market in Portuguese national territory. However, the main metropolitan areas – Lisbon and Porto – are telling a different story, with the number of leases accounting for 42.3% and 43.9% of the market, respectively. These figures are furthermore inflated in the historic centers of those respective cities, with 64.1% and 54.1% of the market representing rental properties.
Taking into consideration that Lisbon and Porto are the cities with the highest demand for real estate, together with the fact that they are the oldest cities in Portugal with dense historic centers and little to no space for new construction, it is only natural that the supply cannot keep up with the demand.
I remember that on multiple occasions during my realtor career in Lisbon, I would meet with a potential landlord and after returning to the office to prepare the new listing in the system, I would get a call from the same client saying “the apartment had already been leased, we had an offer for the asking price!” In a seller's market, there are many daily challenges not only for those looking for a home but also for those looking to work within the real estate industry.
What consists of a seller’s market and what are the challenges realtors face in such a market?
In a seller’s market there is a decrease in inventory, there are less houses in the market than buyers/tenants interested to buy. As an increasing number of buyers are competing for the same pool of available properties, their negotiation power decreases whereas the seller’s negotiation power increases. Houses that have the characteristics most buyers are looking for will spend less time in the market, which allows the seller to have more leverage. As such, it becomes increasingly important for realtors in such a competitive market to manage the seller/buyer relationship to a T.
With the decrease in the number of listings, competitiveness amongst realtors for such listings will increase, as it is well known in the real estate industry that the secret to any realtor’s success is in the quality of their listings. Managing the relationship with the seller and convincing them to sign a contract with you and not another realtor is of the utmost importance.
Buyer’s Market Vs. Seller’s Market: Expectations Vs. Relationships management
To be able to stand out and deliver in a seller’s market, the realtor must understand the main drivers and differences within these markets.
In my years of experience in real estate and business development I have come to realize that there are two crucial elements for succeeding in this profession: the way you manage expectations versus the way you manage relations.
In a buyer’s market the leverage of the seller is decreased, thus it becomes increasingly important for the broker to manage the “expectations” of the seller. There are fewer buyers on the market than the houses available for sale, hence the whole selling process becomes less emotional and much more reasonable. Managing the sellers price expectations is a greater challenge in such a market. Due to the competitiveness of properties for sale, buyers are much more sensitive to price increases or drops of properties with very similar characteristics as theirs.
On the other hand, on a seller’s market the sale process is more emotional. With the scarcity of properties available for sale, buyers are more prone to jump at the opportunity when they see one with the characteristics they are looking for. In this type of market, the realtors need to be acing up the buyer/seller relationships. They need enough perseverance to look for off-market properties and be persuasive enough to get those niche listings. In this type of market, the relationship with the sellers must be managed carefully because sellers tend to be extremely demanding. In an unregulated market, such as the Portuguese real estate market, it is not unusual for the seller to back away from a settled agreement and sell to a higher bidder. Hence, it’s also important for the realtor to communicate with the buyer and prepare them to make an acceptable offer as fast as possible to avoid losing opportunities to a quicker buyer.
Sara Outeiro, ex Realtor and Business Development Manager at EQTY Capital