After the escalation of the last few years, house prices in Portugal started to slow down in the second quarter of 2020. And the expectation of the European Commission (EC) is that fall morein the short term. Without pointing to estimates in the form of numbers, Brussels anticipates a downward trend in housing prices in the Portuguese market, attributing “blame” to the pandemic, but saying that strengthening the supply of new residential construction should contribute to this adjustment phenomenon. On the other hand, the report of the 12th post-program evaluation evaluation mission highlights resilience that the real estate sector has shown in this crisis.
“Several factors point to a further slowdown in the growth of house prices in the short term. Investment in residential construction continued to increase in the first half of 2020 and it is expected that the market supply gradually adjust to demand. In addition, the drop in tourism activity will put further downward pressure on prices, as the short-term rental market (Local Accommodation) is unlikely to return to pre-pandemic levels anytime soon, “read document published by the European Commission, this Wednesday, November 18, 2020.
Despite the slowdown in the pace of growth in the value of homes, in the third half of this year, in the middle of the Covid-19 pandemic, prices still rose in Portugal: 1% between July and September compared to the previous three months, to 2,090 euros per square meter (m2). In annual terms, that is, compared to the third quarter of 2019, the increase was 5.5%, according to the idealist price index.
Mortgage moratoriums and other positive ones, but with risks
Brussels says, on the other hand, that the measures taken by the Portuguese and Community authorities, alongside the moratoriums of national banks (namely in the area of housing credit), helped to soften the negative impact of the pandemic for families and companies in this first phase of the crisis – ensuring coverage of liquidity needs -, however, showing reservations about what comes next, with fears about how the financial system and the real economy will react, when this aid cycle is over.
“The uncertainty surrounding the materialization and magnitude for the real economy, and the subsequent impact on the financial system, remain high,” says Brussels, saying that “the Portuguese banking system is more resilient now than at the beginning of the world financial crisis a decade ago, but there are also new vulnerabilities “.
At the end of September, there were more than 751 thousand contracts covered by default, of which 42% related to housing loans, 29% to consumer credit agreements and the remaining 29% to corporate credit agreements, according to the most recent data from Banco de Portugal. “In June 2020, around 17% of total home loans and 30% of loans to companies benefited from loan deferrals, concentrated mainly in micro and small companies”, recalls the Commission.
Before it “banks face risks of deteriorating asset quality, as non-performing loan ratios (NPL) are likely to increase the moment that loan defaults expire “. In view of this risk scenario, the EC recommends that” borrowers banks look beyond the temporary suspension of payments and prepare for an increase in defaults“, setting up a” timely strategy with shareholders and customers and increasing loss provisions “.
And it also leaves a message to the Government: “in this context, the role of the authorities is paramount to ensure a gradual exit from moratoriums and other measures “.