Real estate, banking and economy threatened by "escape" from non-residents

07 Jun 2019 min de leitura

The Portuguese real estate market continues to be "particularly dependent" on the demand for housing from foreigners, either through tourism or through direct investment, according to the Bank of Portugal (BdP). The regulator warns of the risks of a "sharp and sharp reduction" in demand for real estate by non-residents, something that could threaten the country's financial stability and economy. And it is also concerned about the effect of high house prices.

The supervisor says that the more pronounced slowdown in global economic activity, "due in particular to the occurrence of events of geopolitical tension, increases in risk premia and possible changes in the national regulatory framework" on the real estate market may be translated in an "abrupt halt in the dynamism of real estate" and, consequently, in a downward adjustment of prices.

"There is still evidence, in aggregate terms, of overvaluation in the residential real estate market since the second half of 2017, and it is expected that there is heterogeneity at the geographical level," said the entity led by Carlos Costa in the report on financial stability published this Wednesday , June 5, 2019.

The overvaluation scenario has already led the central bank to call for more care to the institutions in defining the criteria for granting credit, since, in general, the attempt to increase the volume of credit by setting credit rate spreads sure that they do not cover credit risk sustainably could result in a higher level of default in the future.

House prices are a source of imbalance

The central bank decided to create an indicator to measure the systemic risk of the economic environment for banking and concluded that the greatest contribution to the accumulation of imbalances arises from rising housing prices - which have grown above disposable income since 2015.

The BOP says that systemic risk began to decline as banks restructured their balance sheets and the economy began to grow but house prices, on the other hand, began to contribute to an increase in that risk, given the increases of recent years. Still, the regulator anticipates that this contribution will be lower for the rest of the year, although it will prevail.

"In a context of rising disposable income and continued low interest rates, the housing price index is expected to continue to grow above the consumer price index, although there is some loss of dynamism in the residential real estate market. In the context of the current and projected recovery of disposable income, the loss of dynamism in housing prices is reflected in the maintenance of the reduced contribution of the ratio between housing prices and income to the increase of cyclical systemic risk over the projection horizon of one year, "says the Bank of Portugal.

Source: Idealist site - https://www.idealista.pt/news/imobiliario/habitacao/2019/06/06/39885-imobiliario-ameacado-por-fuga-de-nao-residentes#xts=582068&xtor=EPR-32-%5Bpassa_por_aqui_20190606%5D-20190606-%5Bm-02-titular-node_39885%5D-27037011@3