According to a report by ECO: “House prices in Portugal have been growing significantly in the medium term, and are currently estimated to be overvalued”, says the central bank, in the report “Vulnerabilities in the residential real estate sector in Eurozone countries”, released by that European supervisor. Since 2016, the evolution of prices has shown an “upward trend”, with increases between 6% and 11%.

In 2018, BdP estimates indicated that house prices had overvalued again — an increase of 33% between the second quarter of 2013 and the second quarter of 2018. However, estimates made based on European Central Bank models ( ECB) suggest that this overvaluation declined to 6% in the fourth quarter of 2020 and the first quarter of 2021.

“Both estimates are subject to considerable uncertainty,” the report reads. And this is because the estimates “do not take into account some of the drivers of housing prices, such as demand from non-residents and demand for properties for tourist activities”. And, “assuming that demand continues”, this “would mean that the current overvaluation [of prices] is smaller”.

A cautious view

Even so, that Committee warns that “this assumption needs to be viewed with caution, especially in the current context of the pandemic and the implications for international tourism, despite its gradual recovery”.

In December 2020, the BdP had already warned of the same, stating that the calculations did not take into account the demand for houses for tourist purposes (local accommodation) and the demand for foreigners. “Residential property prices have shown resilience, but risks of a downward correction persist,” the institution wrote in the Financial Stability Report published about a year ago.

In the report the ESRB also warns the BdP that tightening the rules on housing credit is not “efficient” and will bring “unjustified costs”, both for banks and families.

The ESRB is composed of entities such as the ECB, the European Commission, the European Banking Authority, the European Securities and Markets Authority, the Economic and Financial Committee, national regulators, among others.