Real estate prices in Portugal are overvalued by20%, according to the International Monetary Fund.

The International Monetary Fund (IMF) estimates the revaluation of housing prices in Portugal at 20%, despite a decline, and warns that banks should prepare for potential risks related to mortgage defaults.

IMF Position

The position was expressed by the IMF Director for Europe, Alfred Kammer, in an interview with the Lusa agency in Brussels in connection with the Fund's annual meeting, where Kammer stated that in Portugal "housing prices are overvalued by about 20%." He also noted that this is a similar trend observed "in several European real estate markets" and expressed concerns that the correction in real estate prices could happen more quickly.

Reasons for the increase in housing prices

As a result of the COVID-19 pandemic and the war in Ukraine caused by the Russian invasion, housing prices in Portugal have sharply increased due to a lack of supply, rising construction costs, licensing restrictions, and the overall inflationary context. High inflation has led to a consecutive rise in interest rates over the past few months as part of the tight monetary policy implemented by the European Central Bank (ECB) to achieve the inflation target of 2%.

Risks for banks and financial stability

The Chamber warns of "risks to financial stability." It notes that "banks in Europe and in Portugal are reliable, but they must be prepared for situations where mortgage holders may experience difficulties with their income. In Portugal, interest rates change rapidly for those with loans, as 90% of loans have variable interest rates, so banks need to prepare for the possibility that families may find themselves in a difficult situation."

He recommends that Portugal create a "buffer" for sectoral risks related to banks, so they can allocate capital to assist families in danger. The profitability indicators of the banking sector continue to rise in the first half of the year, according to data from the Bank of Portugal, which also points to an increase in risks in mortgage lending in the second quarter of this year.

The issue of housing accessibility

Kammer acknowledges the issue of the housing crisis in the country, noting that "the most concerning aspect is the affordability of housing and rentals." He concludes: "This is a problem because it has effects on growth.

Consequences of rising interest rates

The IMF Director for Europe also suggests that Portugal could be one of the eurozone countries most affected by rising interest rates, as it "has a high ratio of variable-rate mortgages," which leads to "a quicker transmission of monetary policy."