Ex-finance minister hints property price spike unsustainable
A former Portuguese finance minister and ex-head of the county’s stock market regulator, CMVM, has warned that an “adjustment in property prices” in Portugal is “inevitable” and hopes it won’t be “an abrupt on.”
Economist Carlos Tavares, in an interview with the online news source ECO, when asked if there was a risk of a property bubble said: “They say that there is no bubble here, but I have difficulty in saying that with this increase in prices one doesn’t exist”.
“What would be undesirable is if house prices fell abruptly, and this is a point on which I differ from some of my economist colleagues. I think an adjustment in prices is inevitable, but it would be desirable that this adjustment should be soft – a soft and gradual landing.”
Carlos Tavares warns that if nothing is done an abrupt collapse in the housing market could occur, the kind of collapse that had caused financial crises in the past.
“If there is a financial crisis, people that are already suffering from the housing problem could also suffer from income problems and find difficulty in getting loans,” he said.
Between 2015 and 2022 Portugal registered the fourth highest increase in house prices in the European Union (94%), more than double the average in the EU. (45%)
From a basket of countries, house prices went up in France by 34%, Germany 56%, Sweden 38% and Italy just 7%.
At the end of 2022, the level of house prices in Portugal was around 75% above maximum values from back when the sub-prime housing crisis unfolded in 2007/2008.
Carlos Tavares statements were made on the back of a snapshot of Portugal’s housing market made by SEDES – The Association for Economic and Social Development in its study ‘Housing and Housing Policies for Portugal’ written by a team of experts coordinated by Carlos Tavares.
Portugal is not the only country facing a possible property bubble. Sweden has been suffering from falling prices with the Swedish government saying it will intervene to stem the fallout if tumbling prices cause a wider economic impact.
High debts, rising interest rates and a wilting economy has produced a toxic cocktail for Sweden’s commercial property companies, with several cut to junk by rating agencies.
House prices are also down by around one-fifth since their March 2022 peak, according to the Organisation for Economic Cooperation and Development (OECD), reflecting soaring mortgage costs.
News from the UK on the property market was also disconcerting this week with analysts predicting that property prices will continue to rise for the next two years before the market suffers a crash.
As mortgage rates rocket to a two-decade high and buyers face the least affordable market in recent memory, alarm bells have been ringing over an imminent house price crash said the Daily Mail newspaper today.
But one expert insists there is no need to panic – yet. Economist Fred Harrison, who accurately predicted the last two global property crashes, claims real estate will keep going up in value in the UK until 2026 – before they come plummeting down.
On the other side of the world, China’s property market is already collapsing after two decades of speculative building fuelled by cheap credit with a move by regulators to curb speculation and deflate the property bubble. China’s slowing economy has accelerated a crisis that is spreading to all corners of life.
Years of lockdowns and other Covid prevention measures have weighed on consumers, who are spending less. Companies have pulled back on hiring. Fewer and fewer people are buying homes in China.
The reasons for Portugal’s bubble are different. A lack of land at viable prices coupled with high construction materials costs and taxes mean developers can’t afford to build affordable housing and turn a profit. The government doesn’t have the funds either. High demand and lack of supply is behind high house prices, while high demand from overseas buyers has contributed to keeping prices high in the price ranges from €500,000 upwards.
Photo: Lusa: Manuel de Almeida