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Foreigners blamed for Portugal’s house price increases

Published on 07/06/2018

Background mutterings over accentuated increases in house prices have this week been brought to the fore. In a new report, the Bank of Portugal warns the situation threatens the country’s financial stability. And it lays the blame firmly on foreign investors.

Says Expresso, “the dynamic has been very much powered by tourism and the intervention of non-resident investors”.

People’s tabloid Correio da Manhã goes further, citing “alojamento local” (the holiday rental regime that is transforming communities) and “foreigners with Golden Visas”.

The key issue here is that if this outside ‘investment’ suddenly started drying up, Portugal could catch a major cold.

Families have already reached ‘critical’ levels of debt to secure mortgages. If they suddenly started defaulting on payments, banks would (once again) be left with mountains of property.

This is not the first time BdP has sounded warnings (click here), but as reports stress, despite continuing to recommend “brakes” on lending, BdP is not blaming banks for today’s situation.

All the nation’s papers have picked up on the warning – highlighting the fact that Portugal’s house prices have soared way higher those in Germany, Belgium, Spain, France and Holland – but it is Observador that puts everything into context.

The news comes ahead of new ‘brakes on lending’ announced in February, but which only come into effect next month.

Thus the BdP report is very much designed to whip up ‘understanding’ for the new lending policies. It talks about the knock on effects of “events of a geo-political and economic nature” which “could lead to an abrupt reevaluation of global risk premiums”, which in turn “could result in a marked slowdown in global economic activity and trade” which would negatively affect the Portuguese economy.

For now, it’s just a warning, larded with “ifs” and “coulds”, but Observador adds that another major unknown is the financial ‘health’ of the investment funds that have been moving in on the country’s real estate sector.

There is “very little information” on them. “How do they fund themselves, with capital or debt? What incentives do they have to sell more or less quickly if the market stagnates or reverses? These are the kinds of issues that are very important because they can determine to a great extent whether or not there might be a sudden correction in the market”.

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