“The probability of a price correction in the residential real estate market tends to increase”, warns the Bank of Portugal (BdP). And all of this “increases the credit risk of the housing loan portfolio”. But the scarce supply of houses should mitigate the impact of reduced demand on prices.
In its analysis of the main vulnerabilities for financial stability in Portugal, and reported by idealista, the Portuguese regulator pointed out the risk of there being “a price correction in the residential real estate market, boosted by the implementation of the uncertain macroeconomic scenario, driven by rising interest rates and geopolitical instability, according to in the November 2023 Financial Stability Report. Furthermore, “the recent situation of political uncertainty that the country is experiencing is a new source of risk, although mitigated by the expected approval of the State Budget for 2024 proposed by the current Government”.
However, the demand for houses in Portugal has been supported by foreigners. “Portugal’s geographical location and the security and stability conditions that have made it a desirable destination continue to support demand from non-residents and resident foreigners”, highlights the regulator led by Mário Centeno.
During the last decade, “the increase in the participation of non-resident buyers characterised the residential real estate market in Portugal”. And in the first half of 2023, the participation in the residential real estate market of buyers with tax residence outside the national territory increased by 2 percentage points compared to the same period in 2022, to 12.7% of the amount of transactions.
There are also those who continue to look for Portuguese residential real estate as an investment asset. Although “alternative savings applications have become more attractive recently, in a context of volatility in financial markets and economic uncertainty, this asset remains relevant in terms of portfolio diversification”, explains the BdP. Additionally, “higher inflation may promote the demand for residential real estate as a store of value”, he adds.