Is a real estate bubble about to burst in Portugal?


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A recent study warns of the possibility of a real estate bubble bursting in Portugal as early as this year. After all, what is a real estate bubble and is it a real risk? Two experts answer this and other questions and offer advice.

Inflation, rising interest rates and increasing costs of living are raising fears of an economic recession.

A recent study, published in 2022, and quoted by Nuno Rogeiro in his weekly commentary on SIC Notícias East/West, raises the possibility that Portugal will be the first country in Europe where a real estate bubble will burst.

The lack of financial culture, the arrival of foreigners, the effects of moratoriums, easy access to credit and low interest rates are some of the factors, pointed out by the study of Value of Stocks, a North American financial disclosure platform, that contribute to the formation of a real estate bubble.

But is the risk of bursting really real? Experts contacted by SIC Notícias admit that there are “some signs that give cause for concern”, but “there are still reasons to believe that this bubble will not occur”.

But what is a real estate bubble, anyway?

A real estate bubble occurs when there is a “pronounced” increase in prices, which “makes them without any economic justification”, explains economist João Duque.

In other words, “prices no longer respect the fundamental values of construction cost plus the appropriate commercial margin, the discounting of future income from rents received, or based on a clear growth in demand”.

“Bubbles are formed when the only reason for the price is based on the expectation that, in the future, they will buy us the property for a higher value without any of the previous reasons being observed,” explains João Duque.

Is there really a risk that there will be a real estate bubble in Portugal and that it will burst?

Yes and no, in other words, although this risk exists, “there are still reasons to think that this bubble will not happen,” says João Duque.

The economist points to “one major concern” in this scenario: “the rise in interest rates that will hit those who have taken on debt more recently”.

Those who have recently bought a house or a car and still have a very high debt, according to João Duque, are those who “could be forced to sell their house” because they can’t afford the increased monthly payments.

Is a real estate bubble about to burst in Portugal?

Natália Nunes, coordinator of DECO’s Financial Protection Office, believes that there are “worrying signs” and also highlights “the increase in interest on variable rate mortgages”, which “will put pressure on family budgets, already conditioned by inflation”.

Despite this, the DECO coordinator calls for “caution”, explaining that there is “a big difference between a bubble that bursts and causes a general collapse of prices, and a fall in prices when the market corrects itself, due to a changed dynamic between supply and demand”.

While acknowledging that there is a risk of “a fall in real estate prices”, João Duque does not believe that this “could correspond to the bursting of a real estate bubble”.

“I believe in a severe slowdown or even a slight reduction, but I don’t believe in a cataclysm,” he says.

What is “reassuring” Portugal at the moment?

Economist João Duque presents five reasons to believe that there is no real estate bubble in Portugal.

The price per square meter in Portugal, compared to other countries, is still low. In other words, “many Europeans and now Americans can sell their properties, buy another in Portugal and use the difference to improve their pensions.
The cost of construction remains very high, not only because there is a shortage of labor, but also because materials and raw materials show no signs of depreciation.
“Although the inventory of existing homes is very high,” “the IMI is not high enough to deter homeowners.”
There is reason to believe that demand will be maintained and “thus avoid a sharp fall that would correspond to the bursting of such a bubble.” “The Portuguese market and Portugal, which was discovered by Europeans a few decades ago (first the British, then the French), is now being discovered by Americans.”
The number of people living in Portugal and working for non-resident companies is growing. The wages of these workers allow them “to pay high rents and buy houses at prices higher than the average Portuguese family, working for Portuguese companies, can aspire to.”

Housing bubble burst, mortgages and interest rates: is there a relationship?

According to data from the Bank of Portugal, 1.4 million families have mortgages, 93% of which have variable rate contracts.

Natália Nunes, from DECO, explains that the increase in interest rates, as a measure to fight inflation, will force many families to make painful adjustments, especially those with a high effort rate and/or lower income.

With these mortgage interest rate increases, household budgets, which are already constrained by inflation, will come under even more pressure.

However, he said that “it is not expected that families, in general, will no longer be able to pay mortgages and will lose their homes. Even so, he said, “it is certain that many will have to make adjustments to their budgets and loans.”

DECO’s Financial Protection Board coordinator goes on to say that for this reason, “we don’t expect housing prices to suddenly start to fall” and thus a bubble to burst. In addition, “on the supply side, housing prices have increased significantly,” she adds.

Is mortgage renegotiation a good option?


Renegotiating is a good option, says Natália Nunes, adding that “it is the option for those with very high effort rates”. This possibility “allows the family not to default”.

How to prevent a real estate bubble from forming?

For Natália Nunes, from DECO, “the State can and must intervene” and gives as an example the package of European funds until 2029, which “contains large tranches dedicated to urban rehabilitation”, which can be used to recover the housing stock and create affordable housing for young people.

For DECO, the easing of “norms regarding the renegotiation and restructuring of loans for permanent home ownership” is a “necessary” measure.

Natália Nunes also defended the “creation of a financing line to help families repay their mortgages” and said it was essential that the supervisory authorities “monitor and evaluate whether the measures recently implemented to mitigate the effects of the rise in Euribor are sufficient”.

For João Duque, anything that prevents the “price from moving away from its fundamental variables”, such as “credit promoted without guaranteed repayment conditions”, “negative interest rates” or “difficulty in accessing rehabilitation or construction permits”, will prevent the formation of a bubble.

And if a real estate bubble bursts, what could happen in Portugal?

João Duque states that “it would bring serious problems to the banking sector” and that this would be the “major and immediate problem.”



The main problems, explains the economist, would be at the level of “creating impairments and lowering their solvency levels.

In addition, a wave of social protest could also begin, “with some possibility of social breakdown.

Can what happened in 2008 happen again?

“It is not anticipated that a housing bubble collapse like the one seen in 2008 could occur.”

Natália Nunes, from DECO, explains that, despite income not keeping up with inflation, the “labor market has low unemployment rates,” which allows families to have “some income.

In addition, she explains that, for some time now, banks have been “restricting the conditions of home loans and there have been measures since 2012 that require them to monitor the proper execution of contracts by consumers, in order to avoid default”.


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