Portugal Real Estate: Credit, Not Immigration Drives The Prices Up

Portugal Real Estate: Credit, Not Immigration Drives The Prices Up

I frequently come across articles that blame mainly immigration for the steep price increase of dwellings in Portugal. While emigration creates more demand for housing and drives the prices up, it’s far from the main factor responsible for appreciation of real estate in Portugal. Given this, it is also equally incorrect to claim that the Portuguese real estate markets relies mainly on immigrants to support the price.

A better way would be looking at interest rates and availability/liquidity of credit. Portugal has very accessible/low mortgage rates, and you can borrow close to EURIBOR as a business. The cost, availability of credit and real estate market liquidity/size (e.g. think of total transaction volume, market depth) have a steeper effect on prices much more than all immigration combined.

ECB kept deposit facility rate at zero or negative, for close to decade (main refinancing operation and marginal lending facility rates were also kept low during that period). It wasn't only the ECB -- Fed, BoJ, PBoC had similar policies. During that period, a lot of debt/credit flowed into the Eurozone, a lot of it seeking real estate investments. Portugal has a quite small market, small GDP, so it's easier to bid up the yield with the new credit. If you look across the EU, you'll see that real estate rose in price everywhere, not just in Lusitânia.

Also, it may be quite irrelevant if the real estate prices crash for some period of time. As long as the rents cover the debt service, real estate owners will continue in profit. This is the basis of many structured real estate investment vehicles.

A much bigger risk to real estate prices is not immigration cut, but The Hormuz Straight remaining closed for at least another ≈2 months, as that would dry up a lot of the liquidity (higher prices, etc) from real estate and many other asset classes. Still, the only way out of this would be more monetary easing policies, because the whole modern economy is dependent on its refinancing capacity (so house prices go back up eventually).