House prices are expected to continue to rise in Portugal, warns the European Commission | Housing

The increase in housing prices in Portugal is expected to continue in the short term, albeit in a more moderate manner. But a price correction in house values ​​is no longer expected to happen, contrary to what the European Commission expected six months ago. This assessment is contained in the in-depth analysis report on Member States’ policies related to the European Semester, released this Tuesday.

In this interim document, which assesses the risks to countries’ macroeconomic balances, which will be released in the spring forecasts in June, Commission technicians emphasize that the real estate context in Portugal continues to be marked by high interest rates, which are only partially mitigated by the projected increase in family income and policies to support the most vulnerable situations.

Thus, “also considering the restrictions [da oferta] in the real estate market, it is unlikely [assistir-se a] a sharp reduction in house prices [como previsto no anterior relatório intercalar de Novembro]”, explains the Commission, adding that, “if foreign investment in the market remains, there is still a risk that real estate price growth will continue to be unusually strong, increasing risks for the future”.

This interim report is made from the perspective of the risks that exist for the economies of the Member States. In the previous version, a strong price correction represented a risk to macroeconomic balances, due to the knock-on effects on the financial system and public accounts. Now, despite Portugal continuing to be one of the countries where the correction seen in the rest of Europe was not observed – with only a slowdown being recorded – “house prices continue to be overvalued”, with this overvaluation increasing by around 30% in the last year.

“Despite the reduction in families’ debt capacity – which was even greater in 2023 than in 2022 – house prices continued to rise significantly in Portugal, in contrast to most European Union countries. This situation had a negative impact on the ability to access housing [no país]particularly in the most vulnerable groups, with additional housing costs increasing”.

In terms of macroeconomic balances, the Commission highlights that the weight of foreigners in real estate in Portugal reduces the country’s risks, since “a significant part” of financing related to the purchase of houses is related to foreign direct investment, thus confirming that part of the strong increase in house prices “was not driven by domestic factors”. In fact, “in December 2023, only 45% of purchases in the residential sector were financed by domestic loans”.

However, on the other side of this equation are the most vulnerable citizens. Regarding this aspect, the Commission begins by citing some measures from the More Housing package to highlight that the Portuguese Government “continued to implement measures to increase access to housing”. Among them, the end of “visas gold”, tax incentives to increase supply, Affordable Rentals, tenant protection mechanisms and the elimination of tax benefits for non-residents.

Still, “despite Portugal having a high proportion of around 80% of homeowners, there are still vulnerable groups with serious problems accessing housing, which are causing a recent increase in the number of homeless people”. In view of this, the Commission recommends “more targeted policies aimed at providing social support to more vulnerable groups”, with the potential to “create cost-efficient solutions in access to housing”.

Finally, another risk identified by the Commission relates to the high exposure of families to credit and, in particular, to variable rates. Despite the sharp decline in this type of credit, the “high exposure to variable rates creates a risk for some families with regard to a substantial increase in the burden of their debt service due to the marked increase in interest rates in 2023”.