Portugal House Prices Could Face Decline

The Bank of Portugal's report highlights the risk of falling house prices in Portugal, but also points out the mitigating factor of scarce housing supply. Stay informed on the potential impact on the housing market.

The housing market in Portugal is facing potential challenges, as the Bank of Portugal (BdP) warns of the risk of falling house prices. However, amidst this concern, the scarce supply of houses is expected to play a mitigating role in the impact on housing prices.

The Bank of Portugal (BdP) has issued a warning about the increasing probability of a price correction in the residential real estate market, which could lead to higher credit risk in the housing loan portfolio. This warning comes as a result of the uncertain macroeconomic scenario, driven by rising interest rates and geopolitical instability. The recent political uncertainty in the country has also been identified as a new source of risk, although it is expected to be mitigated by the approval of the State Budget for 2024 proposed by the current Government.

Despite these potential risks, the scarce supply of houses in Portugal is expected to mitigate the impact of reduced demand on prices. Additionally, the demand for houses in Portugal has been supported by foreigners, with an increase in the participation of non-resident buyers in the residential real estate market. In the first half of 2023, the participation of buyers with tax residence outside the national territory increased by 2 percentage points compared to the same period in 2022, accounting for 12.7% of the total transactions.

Furthermore, Portuguese residential real estate continues to be seen as a relevant asset for portfolio diversification, especially in a context of volatility in financial markets and economic uncertainty. Despite the attractiveness of alternative savings applications, the demand for Portuguese residential real estate as an investment asset remains strong.

In conclusion, while the Bank of Portugal has warned of the increasing probability of a price correction in the residential real estate market, the scarce supply of houses and the demand from foreigners, as well as the continued relevance of residential real estate as an investment asset, are expected to mitigate the potential impact on prices.