IMF warns of risk of real estate ‘bubbles’ in Portugal

The International Monetary Fund (IMF) has warned that there are signs that significant “imbalances” are accumulating in “some areas” of the real estate market in Portugal, following concerns voiced by the Bank of Portugal (BdP) last month, which said that “in the second half of 2017 there were signs of some overvaluation” of property prices.

But the IMF’s warning was not limited to Portugal. In its annual assessment of the euro- zone (Article IV), the IMF notes that “there are financial vulnerabilities that may be emerging on certain exchanges” in certain regions within the EU.

These, the Fund said, are, “for example, Luxembourg, some German cities, some areas in Portugal and the Netherlands - where imbalances between demand and supply are leading to a strong appreciation of residential [housing] or commercial real estate”.

Without further elaboration on the subject, the IMF, led by Christine Lagarde, drew attention to the fact that this latent problem is all the more threatening the greater the private indebtedness.

Diário de Notícias (DN) reports the Fund’s main concern is that, in a context of rising interest rates like those already on the horizon and which may even be experienced by the end of the year, these imbalances can lead to breakdowns. The value of real estate may fall and interest rates rise, leaving borrowers in trouble, it explains.

An IMF mission that visited Portugal in the latter half of May left very concrete messages on the problem.

The country needs to grow and reduce “the vulnerabilities arising from high public and private indebtedness” and “house price increases should continue to be monitored, given the importance of mortgages on banks’ balance sheets”, it advised.

