Recent research has concluded that house prices in Portugal have been overvalued since 2017. If you compare the Spanish market with the Portuguese market, the difference is quite visible. Although Portugal receives more tourism, the house prices are still overvalued.
Portugal House Prices Overvalued
A research study published in Banco de Portugal (BdP) Economic Studies Magazine states that house prices in Portugal have increased a lot in the last 10 years. Statistically speaking, house prices increased by 83% from the start of the year 2013 till the end of the year 2023. During the same period, house prices in Spain increased by 28%. This sends a strong signal about the overvalued prices in the residential real estate market.
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These market prices have been increasing since the start of 2017. The market value in Spain has not shown similar behavior as compared to Portugal. Economists including Afonso Moura, Rita Fradique Lourenço, and Paulo Rodrigues have highlighted their views in the published article named ‘Housing market in Portugal and Spain: Fundamentals, overvaluation, and shocks’.
Economists in the article believe that there are signs of overvaluation of property in Portugal since 2017. The article suggested that Portugal and Spain have faced similar financial issues in the past. The prices have fallen between 2008 to 2013 due to the financial crises. These prices have fallen by 4% every year in Portugal and 8% every year in Spain.
House Prices Recovered From 2014 To 2023
After the financial crises in both Portugal and Spain, house prices began to rise in 2014 and rose till 2023. These prices started to increase after the financial crises in both countries from 2008 to 2013. Portugal registered a recovery of 6% while Spain registered a recovery of 3% from 2014 to 2023. The article states:
Housing price growth in Portugal is, for most of the period considered, driven by the forces of demand, with supply being unable to counterbalance this effect. In the Spanish case, this demand pressure is mitigated by the contribution of supply, particularly in the pre-pandemic period.
The recovery of property values slowed down from 2020 to 2023 due to the COVID-19 pandemic. Portugal faced a decrease in property value in 2020 while it started a strong recovery again in the year 2021. Then again, a restrictive monetary policy cycle started by the European Central Bank (ECB) caused a slowdown in investments. This already reduced the property value in both Portugal and Spain. The situation in Spain is as follows:
In Spain, since the pandemic period, prices have grown below or within the historical average. Initially, supply constraints slightly pressured prices to accelerate, but weak demand counterbalanced this trend. [Recently] neither demand nor supply has created considerable pressure on prices.
Increase In Median Price For Family Accommodation
According to statistics on market value, the median price for family accommodation has seen a drastic increase in the last 10 years. The median price in Portugal was 1,611 Euros per square meter. Some of the subregions which had more median prices are as follows:
- Greater Lisbon: 2740 Euros per square meter
- Algarve: 2613 Euros per square meter
- Península de Setúbal: 1901 Euros per meter square
- Autonomous Region of Madeira: 1889 Euros per square meter
- Metropolitan Area of Porto: 1800 Euros per meter square
All the subregions recorded values much higher than the national figure. The reports from the National Statistics Institute (INE) suggested that during the second quarter of this year, the median prices in Portugal have increased. For a family home, the median price is 1736 Euros per square meter. This marks an increase of 6.6% as compared with the same time last year.
Portugal has released some statistical data which reveals two-thirds of households spend their average budget on house costs. This indicates an increase of 39.3% compared with the past few years.
IMF Warned Decline In House Pricing
The International Monetary Fund (IMF) has warned about a fall in the prices of housing in Portugal. The average mortgage payment increased from 23.8% to 32.8% for average income in the last four years. IMF has clearly stated:
A household with a median income will no longer be eligible for a mortgage loan to purchase a median-priced home in 2023, contrary to what happened in the recent past.
IMF has taken this decision due to the sudden rise in housing prices within Portugal. The prices of property took a rapid rise at the start of 2023. The median income for obtaining a mortgage was 1.5 times the usual amount. It is vital to solve the issue of local housing supply in order to match the demand for households. The article advises:
Necessary actions to reduce regulatory and administrative barriers and resolve the issue of labor shortage in the construction sector. [Government program] Construir Portugal can help address some of the fundamental causes of housing shortages if it is successful in reducing regulatory barriers to construction.
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