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Bank Signals A Potential Slowdown In The Real Estate Sector

Updated: Sep 9, 2023

According to Novo Banco, Portugal is expected to witness a "deceleration" in real estate prices, and the bank anticipates a "reduction in the volume of transactions."

Exterior photo of Novo Banco
Novo Banco

As per the bank's analysis, monetary and financial conditions are becoming more restrictive, and this trend is expected to intensify towards the end of 2023. Novo Banco anticipates that the European Central Bank (ECB) will implement two additional interest rate hikes.

This development is poised to directly impact the real estate sector, leading to a reduction in transaction volumes and a deceleration in property prices, as reported by the bank in a document published on Idealista.

"Given the persistent inflation above the 2% target, it is anticipated that both the U.S. Federal Reserve (Fed) and, notably, the ECB will continue to raise their benchmark interest rates," notes Novo Banco in their report. Specifically, the bank predicts at least two more increments in the Eurozone's key interest rates.

In the prevailing macroeconomic landscape, these developments are anticipated in Portugal: "In the real estate sector, we should see a decrease in the number of property transactions and a deceleration in property prices, as a result of increasingly stringent financial conditions."

Furthermore, "private investment is poised to face constraints due to the surge in interest rates and elevated levels of uncertainty." On the other hand, regarding public investment, there is an expectation of "significant expansion" driven by the implementation of the Recovery and Resilience Plan.

Families' purchasing power is also expected to come under more strain. The document explains, "The rise in interest rates and debt servicing costs are likely to have a dampening effect on private consumption, although it may benefit from a reduction in inflation." This is because the year-on-year change in consumer prices is projected to stabilize around 2%, even though the average annual fluctuation is expected to approach 5% by year-end.

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