Portugal: diminshed housing market prospects ahead

Th e Portug uese housing market saw a drop in sales volumes in Q2, particularly durin g April a mid the introduction of emergency state. Furthermore , a big decline in tourism activity this year has dampened short-term rental prospects, undermining investor sentiment. At the same time, plans to restrict the golden visa program to low - density regions (thus excluding Lisbon and Porto) have been delayed , providing further incentives to foreign investors. While short-term adverse economic effects from Covid-19 will weigh on the Portuguese economy and its short-term rental industry, local renters will benefit from higher supply and new city incentives (currently in Lisbon) in the long-term rental market , which may likely lea d to a downward rental adjustment for tenants (already the case in Q3) . Also, Lisbon and Porto , as Portugal’s economic centers, will continue to attract working-age population , while fiscal and monetary stimulus will help limit job losses going forward. Yet, the country’s reliance on t ravel and t ourism ( 16.5% of total economy ) will hamper the recovery , which along with a recent rise in coronavirus cases and renewed confinement measures, will weigh on the country’s housing market. The job market prospects in exposed industries will be more subdued going forward and m ortgage applications by people employed in vulnerable sectors will be closely scrutinized. Subsequently, in the short-term the market is likely to lose further momentum, which is yet even welcome as it prevents housing market imbalances from rising . However , we do not expect a bigger price correction as the market will be buoyed by ultra-low interest rates, fiscal stimulus , golden visa and non-habitual resident programs and likely pent-up demand by spring next year.