In 2009, Europe was hit with a financial crisis that caused a drop in property values. Portugal was not immune to the effects of this crisis and according to recent articles, it is believed that Portugal will be the first country to experience a housing bubble burst in 2023. However, the reasons for this potential crash are not as simple as they may seem on the surface.
The high prices in the housing market can be attributed to a perceived lack of supply and an explosion in demand. This demand began before the COVID-19 pandemic, but once agents found ways to sell properties remotely, the market saw a significant increase in activity. Despite the high demand for housing, Portugal has a large housing stock with an estimated 750,000 empty homes. Some of these homes are empty due to restrictions on selling inherited properties and others are empty because landlords choose not to rent them out due to difficulties in collecting rent and paying taxes on rental income.
There are also a significant number of properties used for short-term rentals, with 1.1 million homes in Portugal being second homes and nearly 900,000 being used for short-term rentals. While it is unclear how profitable these investment properties are, a potential credit crunch in the country could result in a flooded housing market and a decrease in prices.
In 2021, there were 165,682 recorded housing transactions in Portugal, but if prices were to decrease, it is likely that the number of properties being sold would increase, resulting in a downward trend in prices. Portugal’s housing prices have deviated from the European Union average since 2015, with Lisbon experiencing a 336 percent deviation from the national average. This deviation is caused by a number of factors, including an increase in access to credit, lower interest rates, and a lack of regulations to prevent a housing bubble.
In conclusion, the potential for a housing bubble burst in Portugal is a complex issue with multiple contributing factors. From the high housing stock and difficulties in collecting rent, to the deviation from the European Union average and the increase in access to credit, it is important to understand these factors to make informed financial decisions and potentially benefit from a market correction.
So if you’re thinking of selling your property, now is the time, before the bubble bursts. If you do, contact scottk@buyproperty.com for more info.