The ghost of a real estate crack flies over Portugal

With runaway inflation and rising interest rates, Portugal risks a real estate crisis that could reach the severity of 2008 if the Government does not take measures to help citizens indebted with mortgage loans.

He “boom” Portuguese real estate has soared home purchase prices (what in 2021 they grew a 9,4%) how to rent, driven by foreign demand and tourism.

Portugal recorded last year the highest growth in loans granted in five years: the banks had in their portfolio close to 1,4 million mortgage contracts at the end of 2021 with a debt close to 101.000 millions of euros, according to data from the Bank of Portugal.

The high inflation, and 8,9% in August, has led the Executive of the socialist António Costa, with an absolute majority, to announce aid to stop the increases, but so far only intended for rentals. In 2023 The maximum increase in rents for homes and commercial premises will be limited to 2%, which will be compensated with tax advantages for the owners.

This measure, what “stabilizes” the rents, not enough to prevent a housing crisis, since credit beneficiaries are “blindly” about how inflation will affect them and the help they can receive, explains to EFE the economist João Abel de Freitas.

“If there are no big steps, the crisis will be worse than in 2008”

“The percentage of buyers who will have trouble paying the loan is slightly heavier than in 2008”, the expert warns, former Director General of the Office of Studies and Perspectives of the Ministry of Economy.

“I think it can reach 2008 y, if there are no background measures, it can even be worse”, insists Freitas, that warns that the most affected will be families with incomes below 2.000 monthly euros.

It will be “Many people”, hues, since the minimum wage in Portugal is 705 euros/month and the average does not reach 1.500.

Thus, advocates for public policies to avoid extreme situations, like the evictions. Measures that, according to the Minister of Infrastructure and Housing, Pedro Nuno Santos, the government is studying.

Increases the risk of bankruptcies in real estate

Besides, Freitas predicts that inflation will cool the market: “the demand for home purchases will decrease, which will also lower the selling market price itself”.

Real estate agencies also work with the perspective of a change in the market with a record inflation in 30 years y “a set of added difficulties”.

Beatrice Rubio, CEO of RE/MAX Portugal, is of the opinion that the rise in interest rates may affect the demand for new loans and translate into difficulties in maintaining existing ones, but also alert that some real estate could even go bankrupt.

The golden visa has fueled the bubble

However, experts do not perceive that the fear of a recession has accelerated the sale of real estate. “The real estate sector revealed to be a real lever for the economy during the pandemic, being a safe haven of capital, highly resistant to shocks. Thus, no abnormal sales flows have occurred, arising from a possible recession”, says to Efe.

And “refugio” that has attracted the intention of foreign investors, powered by the “golden visa“, visas in exchange for investments, that in the last decade have fueled the “boom” real estate in cities like Lisbon.

In the first quarter of 2022, he 5,9 % of real estate transactions in Portugal (2.556 households) were made by buyers domiciled abroad, according to the Portuguese National Institute of Statistics.

The rental market, In the spotlight

Besides, Despite the Executive's decision to limit the 2% the rise in rents, prices remain high in a country with high demand.

According to data from the Idealista portal, rents went up in august 1,4% compared to the previous month, while the annual variation amounted to 6,1%, with special incidence in the capital and its metropolitan area.

Fuente: EFE