Market Snapshot Real Estate LISBOA, PORTUGAL 1St Half 2018 Disclaimer
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Market Snapshot Real Estate LISBOA, PORTUGAL 1st Half 2018 Disclaimer Nomera Capital® is a registered trademark. The information contained in this document may be reproduced, provided that the source "Nomera Capital" is mentioned. This document was prepared with data from Confidencial Imobiliário. Nomera Capital® is a proud partner of Confidencial Imobiliário, the most complete real estate information database in Portugal. Nomera Capital® has made a major effort to prepare this document. However, Nomera Capital can’t be liable for any errors or omissions in its content. The information contained in this document is provided without warranty of integrity, accuracy or utility. CONTENTS OUR PERSPECTIVE SUMMARY PRICE STATISTICS PRICE EVOLUTION LEASE YIELDS FEATURED LISTINGS ABOUT US CONTENTS OUR PERSPECTIVE SUMMARY PRICE STATISTICS PRICE EVOLUTION LEASE YIELDS PROPRIEDADES EM DESTAQUE A NOMERA CAPITAL LISBON IS NOT PORTUGUESE, IT IS OF THE Prices per sqm in some selected European cities Braga, Portugal 1,098 € WORLD Sofia, Bulgaria 1,376 € Sofia, Bulgaria 1,376 € The economic globalisation of the last decades has changed Coimbra, Portugal 1,842 € the competitive paradigm of large cities, to play a more Malta, Malta 2,250 € important role than their own countries. Today, Lisbon is a Zagreb, Croatia 2,300 € Budapest, Hungary 2,395 € global city which competes with other large cities in the Porto, Portugal 2,550 € global sphere, becoming – however much it costs us - less Glasgow, United Kingdom 2,606 € Portuguese, more European, more worldwide. Manchester, United Kingdom 2,688 € Warsaw, Poland 2,793 € This movement began with the globalisation of goods and Athens, Greece 2,846 € services. For many years since, it has no longer made sense Bratislava, Slovakia 2,854 € Marseille, France 3,063 € to travel abroad to shop, as the same shops which one can Brussels, Belgium 3,129 € find in London or Paris can also be found in Lisbon (of course Ljubljana, Slovenia 3,330 € there are some differences, but this is just to illustrate the Prague, Czech Republic 3,831 € Lisbon, Portugal 3,985 € idea). Multinational services also have established a physical Moscow, Russia 4,046 € presence in all the large global cities. Madrid, Spain 4,444 € Lyon, France 4,496 € Presently, we see the globalised movement or relocation of Barcelona, Spain 4,700 € people, as we would want. The European Union created the Berlin, Germany 5,228 € Copenhagen, Denmark 5,844 € free movement of people and goods, but this was delayed Dublin, Ireland 5,953 € OUR PERSPECTIVE until European citizens took advantage of internal Frankfurt, Germany 6,583 € movement, such as the possibility of studying in another city, Amsterdam, Netherlands 6,676 € working for some years abroad, or even taking advantage to Stockholm, Sweden 6,991 € Oslo, Norway 7,656 € start a business in a new destination where talent abounds, Milan, Italy 8,439 € and with a cheaper and better climate. For a long time, we Munich, Germany 9,824 € were bound by physical constraints – a thing that makes little Vienna, Austria 11,559 € sense today. Zurich, Switzerland 12,602 € Paris, France 12,796 € London, United Kingdom 14,831 € Source: Global €Property- €2,000.00 Guide€4,000.00 | €6,000.00 Analysis:€8,000.00 Nomera€10,000.00 Capital€12,000.00 €14,000.00 €16,000.00 Lisbon is currently playing this chess game, and competes We can no longer think of a reality dominated by Portuguese (and collaborates) with other global cities like Madrid, couples who buy houses to live in the city centre, because, Barcelona, Berlin, Paris, Milan, London, Amsterdam, Prague, whether one accepts it or not, that is no longer the reality, Vienna, Copenhagen, Stockholm, etc… Competing at the and most likely will never be again. level of attraction of start-ups, with its world-quality hubs, of students, for its excellent Business Schools, of conferences The present reality is that of investment funds buying assets benefitting from excellent infrastructure and hoteling for rehabilitation and for transformation into hotels, offices capacity, of tourism which gets high-end cuisine at and residences of premium quality, to sell to sophisticated reasonable prices, excellent festivals with top level artistes, a clients, who in turn evaluate whether to invest in a property cosy city with nice people, excellent atmosphere, and of for rent in Lisbon, Barcelona or Amsterdam. They are the course, competing at the level of real estate investment. foreign clients who want to buy a house in Europe and look out for prohibitive prices in Paris, London or Milan, and get The effect of this is transforming the city centre of Lisbon in Lisbon a premium quality apartment for a fraction of the into a place where foreigners are more and Portuguese price while being just a 2 hour and 30-minute flight distance people are fewer, where one hears more English and other from these cities with direct flights every one hour. They are foreign languages than Portuguese. This phenomenon the small-time investors from countries in fragile politico- already exists in other global cities, perhaps delayed in economical situations, like Turkey, Brazil, South Africa some reaching Lisbon. Asian countries, etc. who want to have a plan B in Europe, where they could go to in case things get out of control, Independently of whichever value judgment one makes while benefiting from the Golden Visa programme. They are about this situation - and it is not our mission to do that here the retirees from the north of Europe, who have discovered OUR PERSPECTIVE – this is the reality to which we must adapt and define the the advantage of living in a nicer climate, with excellent best strategies to help our clients get the best results. service offerings for health, top cuisine and recreation, and In light of this new framework, when we analyse the increasing the liquidity of their retirement thanks to the Non evolution of real estate prices in the centre of Lisbon, we Habitual Resident programme. have to analyse them in comparison to other global cities, and not relative to the “Portuguese” Lisbon of the past and the reality of the country. Lease yields continue to support market Capital and Lease Returns valuations… 30.8% When we analyse the return rates on residential real estate in 15.8% this present decade, it confirms that lease yields have 12.7% 26.0% 14.5% gradually decreased from year to year, very close to 5%, 10.9% 11.7% 10.6% while the capital gains (property valuation) have greatly 5.6% 6.7% 7.6% 9.9% increased since 2013, reaching the maximum of 30.8% last 5.9% 5.9% 5.2% 5.0% 5.1% 5.2% 4.8% 4.6% year, and already at 14.5% in the first quarter of 2018. 2011 -20127.8% 2013 2014 2015 2016 2017 2T2018 -14.8% With a very sharp capital valuation, the would expect leasing -1.9% yields to decrease at a very fast pace, given that to sustain -8.9% the same level of returns, an income increase proportional to Lease Yield Capital Total capital gains is necessary. This explains why the gap between the supply and the demand at the level of leasing is still greater than that of the sales market. Effective Return Discounting Euribor-12 When we discount the 12-month Euribor to the yields of 5.2% 4.8% 4.7% 4.6% 4.9% 4.9% 4.8% leasing, it confirms that the returns have remained constant, 3.9% having even been increased from 2011 to 2012. 2.008% 5.9% 5.9% 5.2% 5.2% 5.1% 1.108% 5.0% 4.8% OUR PERSPECTIVE For the market to continue a sustainable growth, it is 4.6% 0.536% 0.475% fundamental that the yields discounted from the Euribor-12 0.168% stay close to 4-5%, in order to sustain the capital appreciation. 2011 2012 2013 2014 2015 2016 2017 2T2018 0.035% 0.145% 0.181% - - According with the analysis of return on investment in the Rendas Euribor-12 Yield - lease market, there are no visible worrying signals (yet) of overheating in the market. Source: Confidencial Imobiliário e www.global-rates.com | Analysis: Nomera Capital …but everything can change with the 1% increase Scenario 1 – Rent Increase, steady in interest rates! property price If up to here there are no visible worrying signs of Ano 1 Ano 2 Valorização overheating, given that the yields of leasing sustain the current valuation, everything can change very quickly, as it is Property Price 420,000.00 € 420,000.00 € 0.0% predictable that the ECB would soon increase interest rates, Interest Rate 0.0% 1.0% similar to what the FED in the USA have just done, which has already impacted real estate. Investor Yield 5.0% 5.0% For us to understand the impact of the change in the cycle of Market Yield 5.0% 6.0% monetary policy, we carried out a simple exercise. To make an example, we will analyse the impact of a 1% increase in Monthly Rent 1,750.00 € 2,100.00 € 20.0% interest rates on an apartment T2 which is valued at €420,000 today. Scenario 2 – Property price decrease, With the current level of interest rate at approximately 0%, steady rent and for a yield of 5% requested by the investor, the implicit value of the rent which supports this yield is €1,750 (annual Ano 1 Ano 2 Valorização yield/building price, that is €1,750 x 12 / €420,000) [As a rule- Property Price 420,000.00 € 350,000.00 € -16.7% of-thumb, to quickly get the implicit income which OUR PERSPECTIVE guarantees a return of 5% just divide the price of the Interest Rate 0.0% 1.0% building by 240 (12/0.05%)].