Portugal’s robust property market has historically experienced slight fluctuations and has remained constant amid economic shocks. Although inflationary pressures and interest rates are being felt in the country, Portugal remains one of the few countries in the Eurozone that is less exposed to the economic shocks brought on by the war. However, prices are rising sharply, and we identify higher flowing investment combined with rising GDP and lower unemployment rate, against significant delays in licensing and the sharp increase in construction costs, as the fundamental factors that put upward pressure on housing prices. These contradicting indicators are resulting in unbalanced dynamics of supply and demand in the country, which is not expected to stabilize in the next period.
Indeed, price of existing housing stocks has been increasing and new building completions are lacking behind – about one third of 2008 levels – due to licensing issues and construction delays, especially in the country’s capital city. The prime property market is facing difficulty in keeping up with the increasing demand, and the competition for the available prime properties in Portugal is rising. Hence, the country is experiencing a shortage of middle-income neighbourhoods such that the high-end housing market is absorbing this middle portion of the market. To mitigate housing market risk and market polarisation, the country's implementation of macroprudential policy and recent change in the Golden Visa requirements is providing a granular mechanism to ensure continuous growth and prevent the property market from entering a boom-and-dust cycle in the years to come.
Reference: JLL, Santander