Analysis of the Main Determinants of Fixed Housing Prices in Lisbon
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Analysis of the Main Determinants of Fixed Housing Prices in Lisbon Parishes of Campolide, Lumiar, Benfica, São Domingos de Benfica, Carnide, Belém, Alcântara e Ajuda Joana Filipa Guerreiro Custódio Dissertation to obtain the master’s degree [email protected] Civil Engineering October 2018 Instituto Superior Técnico ABSTRACT The real estate market is increasingly one of the most indicative and determining sectors of the current state of the economy, so it is fundamental to analyze how it will evolve. In this Keywords: sense, it is possible to establish a correlation between the different types of attributes that constitute a property (structural, neighborhood, location and transaction) with the Real Estate Market importance to the buyer when investing. Attributes In the development of this study, the methodologies that best fit the case under study and Transaction Index the attributes with the greatest influence on price setting are established in a first phase. Subsequently, the characterization of the building and the main characteristics of the Lisbon neighborhood was developed and the correspondence with the evolution of the real estate Parishes market was made through the database relating to real estate between 2008 and 2017 in the municipality of Lisbon in the parishes proposed for analysis. Finally, using the best subsets method, it is possible to determine the attributes of each property that determine its economic value for each parish. Although the importance of each variable is not the same for all parishes, it was found that the year of construction, the state of conservation of the apartment and the building, and the existence of burdens at the time of the transaction are the variables with the greatest influence on the determination of transaction indexes. In contrast, it was concluded that the type of buyer and the floor in which the property is located are the least significant variables. 1. INTRODUCTION The present study intends to: 1.1. Background • Analyze articles related to the subject to The real estate market is one of the most indicative understand which methodologies best fit the case and determining sectors of the current state of a under study and the characteristics with greater country's economy, since it is a market that, in addition influence; to being increasingly attractive to investments with • Characterize the built and main characteristics of considerable long-term returns, has been a growing the neighborhood in the proposed parishes the market. When analyzed over the last few years, this analysis; sector has remained in exponential growth until a • Analyze, through a database of real estate financial crisis began in 2008, the consequences of transacted between 2008 and 2017 in these which were reflected in the following years. Although parishes, how the real estate market evolved; this trend has been reversed, it is important in this • Determine, using a statistical method, the context to analyze how the market evolves. attributes of each property that determine its Considering that a property is composed of several economic value for each parish. characteristics, both structural, typology, area, floor or state of conservation, as well as characteristics of the The methodology of the work is based on literature surrounding neighborhood such as proximity to public review based on bibliographic research related to the transportation or the city center, it is possible to real estate market. analyze which have larger when purchasing a Its theoretical support has undergone a careful and dwelling. detailed selection of elements that allow the realization The preference for certain characteristics varies of the state of art, which is the basis of the theme and according to the location of the property, due to the subjects related to it in various parts of the world and great diversification even within the parish itself. The in Portugal, more specifically in Lisbon, allowing thus city of Lisbon has been subject to restructuring that a broad knowledge of the content of the work and a gave rise to greater attractiveness in places that were more effective motivation about the conclusions to be once not so coveted. In this sense, when analyzing drawn. The opinions, tendencies and studies on the several properties transacted in different zones from real estate market were examined and the factors that 2008 to the present, it is possible to obtain a greater determine and influence the value of housing for the perception of which attributes buyers value and are parishes in study were analyzed. willing to pay. Through the SPSS data modeling program, a database is analyzed for a set of real estate in the city 1.2. Objectives and methodology of Lisbon, with the purpose of assessing the most Analysis of the Main Determinants of Housing Property Prices in Lisbon |1 The case study of the parishes of Campolide, Lumiar, Benfica, São Domingos de Benfica, Carnide, Belém, Alcântara and Ajuda relevant variables for the determination of the transaction index of each property, both in the county and in the parishes under study, and if these are 2.2. Residential Sector coincident. The residential sector has been attracting increasing 2. LITERATURE REVIEW interest, especially since economic development in 2.1. General Considerations several countries has had similar dynamics: a Regardless of the limit set for what the universe of the prolonged boom in real estate prices until the onset of real estate market comprises, its contribution to the the financial crisis in 2008 [3], [4], as can be seen in economy of most developed countries is substantial. Figure 2. This is possible observe a set of EU According to Bureau of Economic Analysis and countries that experienced booms in property prices Eurostat, in the United States of America, the sector's before the financial crisis, followed by a downturn contribution to gross value added has been around 12- (e.g., Ireland, Spain and Denmark). Figure 3 shows 13% since 1997, which amounted to more than USD another group of European countries during the same 2,500 billion in 2017. In the European Union (EU), the period but with different developments. A group in figure was up to 1540 billion euros over the same which the development of real estate prices was period, corresponding to 9-10% of European gross almost constant (e.g., Finland and Germany), and value added. In addition, according to NREV and another group that witnessed an exponential EPRA, the gross value added of the commercial real development (e.g., Portugal, Finland, Sweden or estate market in the EU amounts to € 329 billion, with Norway), in some cases after a period of decline the remainder being the residential sector. related to crisis [3]. Within the residential real estate market there are several categories that include lease (private, social and other) and sale. In the United Kingdom, sales of Property price index- index level (2015 = 100) residential real estate by real estate agencies 200 175 accounted for about 21% of the gross value added of 150 125 the real estate market in 2016. Assuming a similar 100 proportion to the EU level, this would amount to EUR 75 50 320 billion contribution to the gross value added. However, the contribution of the different categories 2007 - Q1 2007 - Q1 2011 - Q1 2015 - 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q3 2008 - Q1 2008 - Q3 2009 - Q1 2009 - Q3 2010 - Q1 2010 - Q3 2011 - Q3 2012 - Q1 2012 - Q3 2013 - Q1 2013 - Q3 2014 - Q1 2014 - Q3 2015 - Q3 2016 - Q1 2016 - Q3 2017 - Q1 2017 - Q3 2018 - Q1 within the residential sector varies between countries 2005 - Q1 and regions, due to differences in the proportion of France Ireland Italy households living in leased housing ranging from 2.4% Netherlands Spain Denmark in Slovenia to 54% in Germany in 2016. In the in the United Kingdom United Kingdom, this proportion was 24% while in Portugal only 14% [1]. In terms of the percentage of Figure 2 - Property price index - Part I the population, the figures change, concluding that the size of households in rented dwellings is higher than Property price index- index level (2015 = 100) that of households in own dwellings (source: Eurostat), as can be seen in Figure 1. 140 120 100% 100 80 75% 60 40 50% 20 25% 2007 - Q1 2007 - Q1 2011 - Q1 2015 - 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q3 2008 - Q1 2008 - Q3 2009 - Q1 2009 - Q3 2010 - Q1 2010 - Q3 2011 - Q3 2012 - Q1 2012 - Q3 2013 - Q1 2013 - Q3 2014 - Q1 2014 - Q3 2015 - Q3 2016 - Q1 2016 - Q3 2017 - Q1 2017 - Q3 2018 - Q1 0% Italy Norway Belgium Finland Spain Malta Latvia EU-28 Serbia France Turkey Cyprus Poland Ireland Austria Greece Croatia Iceland Hungry Estonia Finland Norway Sweden Belgium Bulgaria Slovakia Slovenia Portugal Romania Denmark Germany Lithuania Switzerland Netherlands Luxembourg Germany Portugal Sweden Czech Republic Czech EU area (EA-19) area EU United Kingdom United Republic of Macedonia of Republic Figure 3 - Property price index - Part II Tenant - reduced price or free Tenant - Market value In addition to the specific aspects that each country Owner occupied, with mortgage or loan Owner occupied, no outstanding mortgage or housing loan has, there are many factors that promote a Figure 1- Distribution of population by tenure status differentiated performance of European markets [4]. The development of the housing market can condition In recent years, several countries (including the US economic activity, particularly through the credit and the EU) have watched their economy channel and the impact that housing wealth has on development vary in many cases due to the real estate consumption. About the degree of synchronization of market directly [2]. The subprime crisis that began in housing price variations between countries, it is even 2008 in the United States and spread globally was the more difficult to deal with the existing segmentation in most obvious demonstration of the dynamic the housing markets (significant differences in market relationship between real estate and the economy.