House prices in Portugal will continue to grow, albeit at a slower pace than in recent years, but are “unlikely” to fall sharply in the near future as few homes come onto the market and will continue to come along with “strong demand” from foreign investors,” says the European Commission (EC) in one of the country’s assessment papers as part of the 2023 European Semester cycle.
And this already taking into account the large investments foreseen in the Recovery and Resilience Plan (PRR) in housing.
According to the analytical report on Portugal (country report), where Brussels assesses macroeconomic and budgetary imbalances, based on the new National Reform Program and the Stability Programme, the EC forecasts that “housing prices will continue to grow, but at a slower pace, and a sharp fall in house prices is unlikely”.
“Over the past ten years, these prices have nominally doubled in Portugal, with an increase of 34% over the past three years, from 2020 to 2022,” the Commission calculates. In 2022 alone, “prices increased by about 13%”.
The EC also calculates a measure of the average overvaluation of the housing market and says prices last year were 24% higher than what would be a normal reference value, taking into account the fundamentals of the market. In 2021, this deviation, which reflects the overvaluation of housing, already reached 20%.
Looking ahead, the EC predicts that “housing price growth will moderate in the future as interest rates rise”.
In addition, “there will remain supply constraints that reduce the margin for a substantial price reduction”, moreover “in a context of strong demand for real estate from foreign investors”.
In any case, the EC notes that “some measures have been taken in response to recent house price developments”.
“The central bank [Banco de Portugal] adopted a macroprudential recommendation, which will reduce the average term of mortgage-backed loans to 30 years from 2023.”
The government approved the More Housing program in February 2023, he adds. But the problem of decent and affordable housing is an even more serious one, as “social indicators point to increasing poverty in 2020 and 2021”. And “income inequality has also increased”.
“The coverage and adequacy of social protection are of concern, particularly due to the complexity and relative inefficiency of the system,” the EC warns.
“The percentage of people burdened with housing costs has also increased, in a context where the supply of social and affordable housing is still insufficient,” the Commission said.
To avoid an even worse scenario, the government announced investments subsidized by European funds.
“Portuguese PRR provides €2.73 billion to increase the supply of permanent and temporary housing at affordable prices”, with “construction work underway, both in mainland Portugal and in the Azores and Madeira, to provide adequate housing solutions to the most vulnerable groups”.
Even with economic growth and relatively low unemployment, although it is already starting to rise (the rate is already at 7.2%, the worst value since the end of 2020), the EC notes that poverty in Portugal has continued the trend of decline over the past years and the continued deterioration “is one of the most serious in the European Union”.
Civil servants are disappearing
Another concern in this review of the European Semester is the “capacity” and “continuity” of some public services in the near future. The EC is particularly concerned about the public school. The problem lies in the accelerated aging of civil servants and the lack of attractiveness for recruiting and retaining professionals.
“The aging of the public administration and the attractiveness of public sector work pose significant risks in the case of Portugal. .3, in the EU around 1.5) and in other areas of the public sector, such as education. This poses a risk to the continuity and capacity of public services,” warns the European executive headed by Ursula von der Leyen.
And be careful with the garbage
In the recommendations to Portugal, the EC believes that by the end of this year, the government should end aid provided to combat the effects of the energy crisis and better ensure public investment, thereby improving “effective absorption” of PRR subsidies is guaranteed .
And it also leaves an innovative tone in this kind of communication. The EC says it is concerned about the accumulation of waste in Portugal. The country must “improve the conditions for the transition to a circular economy, namely through more prevention, recycling and reuse of waste, to prevent it from ending up in landfills and incinerators”.
It was learned yesterday that “Portugal asked for EUR 3.3 billion in additional loans” to increase the size of the PRR in terms of measures related to energy, Valdis Dombrovskis, the Vice President of the European Commission for Economy, revealed on the European Press Conference of the Semester.
Luís Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
