The Bank of Portugal (BdP) today warned of a possible "abrupt halt" of the dynamism of the real estate market, considering that "possible changes in the national regulatory framework", along with other factors, may lower prices.
"The more pronounced slowdown in global economic activity, particularly as a result of events of geopolitical tension, increases in risk premia and possible changes in the national regulatory framework on the real estate market could lead to a sudden interruption of dynamism of real estate and, consequently, in a downward adjustment of prices, "according to the Bank of Portugal statement accompanying the report.
The supervisor considers that "the Portuguese real estate market continues to be particularly dependent on the intervention of non-residents, either through tourism or through direct investment."
This situation poses a potential risk to financial stability if there is "a possible sharp and sharp reduction in demand for real estate by non-residents," according to Banco de Portugal.
"In the last year, the Portuguese real estate market maintained a high dynamism, with a direct reflection on the volume of transactions and price growth. This dynamic has been justified by economic growth, (…) but also by the environment of low interest rates and high liquidity, which induces profit-seeking behavior on the part of economic agents, "the report said.
In this sense, the Bank of Portugal warns that "Portuguese banks continue to concentrate a significant part of their exposures in the real estate market – essentially through mortgage lending – despite the slight reduction observed since 2016."
"Price dynamics may pose a risk to financial stability if it introduces procyclicality into credit growth, particularly in the context of excessive pricing," the supervisor adds in the report.
The Bank of Portugal also considers that "there is still evidence of some overvaluation of housing prices at the aggregate level".