In the same week that Bloomberg considered Portugal as having a low risk of reaching a property bubble (read here), the Bank of Portugal (BdP) has admitted that real estate prices are overvalued and need to be monitored.

The statement comes from the governor of Portugal's central bank, Mário Centeno, after the institution warned of the risks of a possible real estate bubble when house prices are eventually corrected in its Financial Stability Report (REF) for June 2021.

This follows the news that property prices in the residential segment increased again compared to last month, a record rise in two years (see here), despite the pandemic. The governor calls for the real estate sector to be closely monitored.

“The current situation requires all the care that, normally, in times of crisis, this [real estate] sector should be given, because it has in fact a huge interpenetration in the financial system,” said Mário Centeno in a press conference following the publication of the report.

The REF warns of the risk of a “price correction in the residential real estate market in Portugal, which may result from the potential retraction in demand for real estate by non-residents, which may arise due to a deterioration of international financing conditions”.

For this reason, and due to the “relevance” of the real estate market for the economy, the report indicates that “monitoring the signs of a possible overvaluation of prices” is recommended.

It also stresses, however, that any correction in house prices will not be too significant, because in recent years, as the governor explained, there has been a reduction in household debt ratio, as well as an improved risk profile of borrowers.

Whether you're looking for expert real estate advice or would like more information on buying or selling a property in Portugal in these unusual times, get in touch with the team at Algarve Home Sales.