“Housing Prices Should Continue to Rise,” Says BdP

11 October 2017

Banco de Portugal (BdP) notes the rise in housing prices and forecasts a continuation, pointing to demand by non-residents.

In the first quarter of this year, housing prices recorded a year-on-year increase of 7.9%, an ‘accelerating trend’ which the BdP expects to continue, in part, through ‘increasing demand by non-residents’, as stated in the bank’s October Economic Bulletin.

The national regulator, a member of the European Banking Authority (EBA), pointed to a “recent” trend of “investment portfolio reallocation” that is taking place on a pan-European scale and, alongside “other factors, may lead to an increase in demand by non-residents. The possibility of investing in the real estate market “has become more appealing, reflecting the increase in its rate of return compared to other long-term investments, including lower risk”, he says.

In this context, the BdP anticipates that during this year “housing prices should continue to rise well above inflation”, supported by the demand from Portuguese and foreign nationals.

New housing loans rise, and interest rates decrease

On the banking side, the number of new housing loans increased and interest rates “decreased slightly” in the first half of the year. According to the October Economic Bulletin, “by mid-2017, these loans reached the highest values since the end of 2010”, even though they “account for only about half of the amounts observed in the years before the economic and financial crisis.”

In 2016, Gross Fixed Capital Formation (GFCF) increased by 1.6%. This year the BdP projects a growth of 8% and explains that it not only looks at the improving labour market situation but also “maintaining access to financing at historically low-interest rates, with an anticipated increase in new loans for purchase of housing in 2017.”

Residential housing prices in Portugal rising above the European average

According to Eurostat data, in the second quarter of this year, home prices in Portugal rose by 8.0% compared to the same period last year. The cost of housing in Portugal continues to grow more than twice as fast as the average for the eurozone, at 3.8%.

For the quarter, between April and June, housing prices increased by 1.5% in the euro area, compared to the first quarter, and Portugal registered a rise of 3.2%.

Original Story: Vida Imobiliária – Fernanda Cerqueira

Translation: Richard Turner