Property sale prices up to 40% higher than bank valuations
According to an analysis by BA&N's research unit, the price of homes in Portugal increased by 9.4% in 2021, but valuations remain below market values.
The price of homes increased by 9.4% in 2021, but valuations remain below market values, according to an analysis by BA&N’s research unit, indicating that in Lagos and Lagoa (Algarve) the discrepancy exceeds 40%.
According to this study, the average price per square metre reached €1,355 in 2021, translating into an increase of 9.4%, with the value of housing transacted over the past year amounting to €28.1 billion, 31.1% more than in 2020.
“This dynamic has been accompanied by a sharp growth in bank financing for the purchase of housing,” indicates the study, accentuating, however, that the valuations required by banks to grant these loans are not always keeping up with the market developments.
“There are municipalities in which the values of the houses transacted far exceed what is, in theory, the real value”, says BA&N’s research unit, specifying that the “rise in prices has been accompanied” by the valuation attributed by expert appraisers, “but not totally”.
According to BA&N, “in light of the valuations made by the experts, there is an overvaluation of properties at the time of the transaction, which at a national level is 5.4%”, taking into account bank valuation data and housing prices published by the National Statistics Institute (INE), with reference to the end of 2021.
On average, the price per square meter of the bank evaluation was, in the fourth quarter of 2021, €1,285, while the average sale price amounted to €1,355 per square meter.
The existence of purchase and sale values above the values at which experts evaluate the properties when applying for financing makes it more difficult for families to get their loans approved, the study notes, recalling that banks use the evaluation to calculate the value of the loan to be granted.
“Taking this rule into account, and in light of the existing differential between average sale prices and appraisals, it is often only with a high level of equity that financing can be obtained,” the analysis states.
Therefore, “with a favourable evaluation, the limit of 90% of the value of the property is applied, which means that the buyer has to pay just 10% of the price, but considering the current differentials, there are situations in which the borrower may have to pay up to 40% of the purchase price,” it adds.
This differential varies from region to region, with the Algarve region showing the highest transaction prices when compared to valuations carried out by experts registered with the Portuguese Securities Market Commission (CMVM).
In the case of this region, the average purchase price per square metre rose to €2.114 at the end of last year, compared to the average €1.731 in bank valuations, “which implies an overvaluation of property by 22.15,” in the case of the Algarve.
A citywide analysis shows that in the boroughs of Lagoa and Lagos, the difference between the price paid for properties and the value attributed by experts to the homes being valued is around 42%. In the first case, the average sale price rose to €2,351 per square metre and that of the evaluation to €1,658. In Lagos, the figures were, respectively, €2,547 and €1,843.
Outside the Algarve region, there are other municipalities where the difference between one price and the other exceeds 30%, such as Alcochete and Cascais. In Lisbon, the difference is 16%, as a result of an average sale price of €3,723 per square metre and an average valuation of €3,215.
There are, however, regions that break the rule, i.e. where valuations are above transaction prices, namely the Centre and the Alentejo, where, in the former case, properties are valued at €904 per square metre and deals are closed at €896, while in the Alentejo the figures are €867 and €800, respectively.