Experts Reject Potential Housing Bubble, Forecasting Reduced Price Growth

30 July 2018

Housing prices are nearly at a decade-long high, and several governmental institutions (the Bank of Portugal, CMVM and IMF) have issued warnings about the potential impact of rising prices. However, companies involved in the real estate market’s day-to-day reject the possibility of the existence of a real estate bubble in Portugal. They point to reduced price growth beginning in 2019.

The arguments against a bubble

RE/MAX, for example, relies on recently released data by the National Statistics Institute (INE) to insist that no real estate bubble exists in Portugal.

The average price per square meter of residential banking assessments (flats and houses) in Portugal increased by 5.5% between April 2017 and April 2018, growth that real estate brokerages consider “moderate,” adding that growth in the municipality of Lisbon in that period was limited to just 1.4% (up from €2,095/m2 to €2,125/m2).

Manuel Alvarez, the president of RE/MAX, said in a statement that “there is a good distribution of gains for all stakeholders in the current market, buyers understand that the asset will appreciate in the future, sellers are assured of a good deal and the banks can continue to grant loans because of the benefit of slowly increasing prices to the loans.”

According to the executive, prices in the municipality of Lisbon saw strong growth in 2015 and 2016 and now have entered a period of containment. [Prices] in the municipality of Porto have not yet reached this point and the average price per square meter increased by 11.3% (from €1,514/m2 to €1,685/m2) in the period and “will begin to a process of containment, as was the case in the capital.”

Banks agree with real estate agencies

This same view is shared by BCP’s new CEO. Miguel Maya admits that “demand is at a fever-pitch” for some types and locations of properties while rejecting the possibility of a bubble in the real estate market, guaranteeing that the “bank is [acting] prudently.”

Francisco Horta e Costa, managing director of CBRE, recalled that “we began from a low starting point and in fact we were not accustomed to seeing Lisbon with prices that were a little closer to the European average”, in an interview with Jornal de Negócios. He added that “if we want Lisbon to be a European city in its entirety, we must begin to get accustomed to the fact that prices would never have remained at such a low level, especially during the crisis that affected us both profoundly and during such a long time.”

Buyer’s profile influences analysis

According to the executive, “we have to work on supply” to control prices. Mr Horta e Costa stated that “I do not believe that there is a bubble,” explaining that “I will believe there is a bubble when we begin to see the mass production of flats and houses in areas where there was nothing before, and when these flats are being acquired by people who can’t really afford them.”

Mr Horta e Costa added that these days, and in recent years, “the market has been much more characterised by equity investors. Also, on the one hand, the banks have been very cautious, and investors as well. On the other hand, there are currently some variables here that make the perception of a reduction in investment risk in Portugal less artificial and much more consistent.”

Original Story: Idealista

Photo: Gtres

Translation: Richard Turner