What to expect from real estate brokerage in 2021?
Sometimes reality is stranger than fiction itself, and what is apparently bad in general can become good in particular. If you want to know why I have the feeling that right now we can really be here in the right place at the right time, read me through.
Far from trying to do futurology, I'm just going to focus on a few issues to give them a greater or lesser degree of probability if there is such a possibility.
Will the number of real estate transactions in 2021 go down?
For us who are doing real estate mediation, this is the question that really matters (precisely because we live on the number of real estate transactions we do). My answer to this question is: Most likely, the number of transactions will continue to fall!
It has been falling since 2019. Looking at data from INE (National Institute of Statistics), we can see that in 2012 there were 142,000 transactions, in 2013 about 141,000, in 2014 approximately 149,000, 2015 about 173,000, 2016 about of 200,000, 2017 about 227,000, 2018 about 242,000, in 2019 around 230,000 and it is estimated that in 2020 around 170,000 real estate transactions were made at most.
An important data that the INE highlights is the fact that between 2012 and 2019 about 7.3% of transactions were made by foreigners. This fact is important because we all have the perception that with the pandemic, the movement of people became more difficult and that this difficulty in traveling with all certainty that negatively influenced the purchases of foreigners in Portugal and consequently the number of transactions in the global. I am very curious to know the percentage in number of transactions that were made by foreigners in 2020 (I will have to wait a few more months for the results to be calculated).
With regard to national buyers, it is quite likely that in general the average buyer will be more cautious as the national economic situation will show clear signs of instability.
Will the price of real estate go up or down in 2021?
I don't actually have a direct answer to this question specifically for 2021. It is more complex than it appears. There are too many factors that can tip this issue on either side. The issue is essentially political at this point and they, politicians, on occasions like these tend to make decisions based on emotion rather than reason.
It is more important to mention the importance of this issue. It is indeed important to try to understand the real estate price trend, as the price direction has an influence on the perception of the property's attractiveness. As real estate professionals, the more attractive the perception of real estate, the better for us. A real estate market with rising prices will always be much more dynamic than its opposite.
When it comes to discussing real estate prices it is important to first consider that their discussion in general terms may be inconsequential, since each property is unique in terms of its location and surroundings. It is perfectly possible for us to be in general terms in a market where prices in general go up, but there are still properties that continue to counter-trend causing their price to drop. The same is true for its opposite.
What I really have to say about prices in general is the current consensus in relation to central banks and that they are doing everything possible to keep prices of financial assets up, as the interruption of this trend would worsen with proportions biblical the insolvency of individuals, companies and even states. The global barometer of the direction of financial asset prices has normally been the American stock exchange and it indicates that the prices of financial assets will most likely continue to inflate. The vast majority of properties serve as guarantees for the creation of financial vehicles derived from mortgage loans and the inflation of the latter is reflected in the former. At this moment, with interest rates at historic lows, the cash injections promised to the member states of the European Union and the low supply of real estate on the market is a reason why prices are likely to remain or even rise as long as mortgage credit moratoriums do not end and prevent the appearance of more real estate on the market.
On the opposite side is the continued deflationary argument for real estate prices. It has been known for a long time that debts are counterproductive to economic development when certain values are exceeded. Values above 70% of the debt in relation to the gross domestic product (GDP) cause the economic stupidity and in the Portuguese case we should already bein 136% of debt in relation to GDP. For each percentage point above the value of 70%, it was estimated that the effect would be counterproductive by two percentage points. It is then clear that the debt trajectory cannot continue and that at some point we will have to reverse this trajectory if we want to see our quality of life increase as a whole. The reversal in the trajectory of public debt in the Portuguese case will have a major impact on private debt. Without private debt, property prices fall simply because there is less liquidity available in the system.
It seems to me more likely that it is the inflationary argument that will prevail in the medium and long term, although there may be more in a deflationary event in the short term. Right now, we are in the midst of insolvencies and events like this, although protected with tools such as moratoriums, extending debt terms and similar mechanisms, there is a high probability that this will happen even if only for a short time. time a small general fall in prices that will soon be fought with mechanisms of financial bazookas and the like, leading in the medium and long term prices in general to rise through the monetary devaluation.
What are the risks for 2021?
David Hume in 1752, one of the great geniuses of the time, known for his radical empiricism and his philosophical skepticism, wrote the following sentence on the topic of public debt:
"It has always been seen in history, where a government has mortgaged all of its revenues, it necessarily sinks in a state of languor, inactivity and impotence."
This is precisely what has been happening in the Portuguese case and the main risks for me in the year 2021 will necessarily come from the political decisions of a state with a very high level of indebtedness. And when it comes to these decisions, it is very likely that they will continue to be made based on emotion rather than reason. When this is the case, the business environment becomes less predictable and it is only possible to plan for the short term.
The destruction of some middle class is undeniable at this point. In the year 2021, the consequences resulting from this destruction, although they are not yet very relevant to the real estate brokerage activity, as there are a number of other factors that counterbalance in the positive sense and that end up benefiting our activity. However, the destruction of the middle class is negative for society in general and will affect confidence in long-term decisions such as buying a property.
The increase in unemployment resulting from the health crisis will reduce the population that meets the requirements for borrowing housing credit products.
But what is the final verdict for real estate mediation in 2021?
Apparently this year can be very positive! Whatever happens, we go with a high probability to pass between intervals of rain without large drops of water.
Let's see… interest rates are at historic lows and there is a high probability of staying that way over the next year. Low interest rates facilitate and promote indebtedness and the latter facilitates the acquisition of real estate. In times of tragedy people tend to invest more and what would have been spent on superficialities can now be used as an example for an eventual entry into the acquisition of real estate in which credit is used.
The low supply of real estate in the market promoted by the extension of the moratorium terms on mortgage loans is a factor that will also serve as a catalyst. This little offer will serve to support prices, thus the real estate will continue to transmit a sense of security when it comes to the preservation of wealth.
The difficulty in renting a property is probably at historic highs. With the government interfering in the market and creating legislation on top of events, it has resulted in an added difficulty for those in the rental market as a tenant to the point that many potential tenants end up throwing the towel on the floor and turning to the purchase of a property. Interest at historic lows ends up making the transition from potential tenant to real estate buyer viable.
Finally, we are in a very unstable economic environment where those who saved money are now at risk of monetary devaluation. Having reached the point where raising taxes is close to saturation point, the next best option historically has been monetary devaluation and this risk has historically led savers to take refuge in physical or financial assets that accompany inflation. Given the low financial culture in Portugal, it is very likely that one of the preferred assets at the national level will turn out to be physical assets such as real estate.
A good year!