By 2018-08-13 InReal Estate

German institute warns of looming property bubble in Portugal

It is the latest warning to be made about Portugal’s soaring house prices. DIW, the German Institute for Economic Research, has conducted a study that found that Portugal is one of many countries at risk of forming a property bubble that could burst sooner or later.

According to Público, the study draws parallels between the current state of the property market and 10 years ago when the bankruptcy of Lehman Brothers became the tipping point of the US property crisis which led to the world economic recession.

The study used data from the OECD to compare the price of property rental values and house prices.

In a nutshell, if house prices start to grow more sharply than rents, leading to significant price discrepancies, than the situation is considered “unsustainable”. And according to the findings, this is exactly what is happening in Portugal and many other countries in Europe and North America.

In other words, owners are charging prices that do not currently reflect the value of their property, but values that they believe will be charged in the future.

Speaking specifically of Portugal, the authors of the study pinpointed 2016 as the year that this possible property bubble started forming. They add that the trend continued into 2017 and this year.

Público adds that Portugal has only seen one other serious property bubble over the past 20 years which took place between 1998 and 2001.

DIW has become the third entity to warn about the risks of a property bubble in Portugal following warnings made by the Bank of Portugal and the International Monetary Fund (IMF).

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