Portuguese real estate is stronger. But you shouldn´t lose your memory.

Real estate is Portuguese stronger. But you should not lose your memory.

Anyone who has been following the real estate market Portuguese long enough knows that few words are as dangerous as these: this time is different. Listening to them does not necessarily mean that we are facing a new crisis, nor do I believe that there are reasons today to directly compare the current market with the one Portugal experienced just over a decade ago. But economic history teaches us that the periods of greatest confidence are also those in which we must maintain greater capacity for analysis and prudence.
The most recent figures show that the indebtedness of construction and real estate companies has once again exceeded 58 billion euros, reaching absolute values close to those recorded in 2013. At first glance, this comparison may cause concern. After all, we all remember what happened at that time. Portugal was under international financial assistance, many companies in the sector were excessively indebted, banks were accumulating problematic assets and thousands of families were facing difficulties. But comparing only absolute values would be deeply unfair and economically wrong.
Today´s Portugal is very different from Portugal in 2013. At the time, the debt of construction and real estate companies represented almost 35% of the national GDP. Today, it represents about 19%. The economy has grown, companies have improved their capitalization levels and the sector´s financial indicators show a much healthier evolution. The financial autonomy of construction companies, for example, went from about 21% in 2013 to more than 38% in 2024, while the weight of financing obtained has decreased significantly.
Therefore, it is important to start by saying clearly: we are not in 2013 again.
The increase in current indebtedness also has a very logical economic explanation. Portugal needs to build more. We have a structural shortage of housing, a growth in the resident population, greater pressure in the main urban areas, foreign investment, tourism, new companies settling in the country and a demand that continues, in many segments and regions, above the capacity of supply to respond. Building requires capital. Buying land requires capital. Developing projects requires capital. And real estate is, by its very nature, a financing-intensive activity.
We should not, therefore, look at all debt as if it were necessarily a problem. There is a huge difference between debt used to sustain unproductive assets or projects without demand and debt intended to finance necessary construction, infrastructure, urban rehabilitation, and new economically sustainable projects. Credit is an essential tool for economic development. Without financing, we simply will not build the houses that Portugal needs.
But recognizing this does not mean ignoring the risks.
And perhaps it is precisely here that we must find a balance that is so often lacking in the public debate Portuguese. It seems that we are forced to choose between two extremes: either the real estate market is extraordinarily strong and there is no cause for concern, or we are facing a bubble about to burst. In reality, none of these simplifications help to understand the market.
The sector is more solid, more professionalized, more international and financially more robust than it was a decade ago. But it remains exposed to interest rates, the evolution of the economy, construction costs, political decisions, taxation and investor and consumer confidence. A real estate project that today seems perfectly viable may face, during the several years necessary for its completion, profound changes in economic conditions.
This is precisely why the increase in debt must be monitored carefully, but not with alarmism. A solid company, with adequate equity, a good project and identified demand can perfectly increase its debt without worryingly increasing its risk. Another company, over-leveraged and dependent on continuous price appreciation to make the project viable, may present a completely different risk.
The aggregate numbers tell us part of the story. They never tell the whole story.
The same prudence should apply to household housing credit. The Bank of Portugal´s recent intention to tighten the criteria for granting new loans, reducing the recommended limit of the effort rate from 50% to 45%, will naturally provoke debate. I fully understand those who argue that, in a housing access crisis, making credit more difficult can further distance families from the possibility of buying a house. It is a legitimate concern. But we must also ask an uncomfortable question: is it really a solution to allow a family to commit half, or more, of its monthly net income to debt installments?
An effort rate of 45% means that almost half of a family´s disposable income can be compromised before paying for food, energy, transport, education, health and all the other normal expenses of life. All it takes is a rise in interest rates, a temporary loss of income or an unexpected expense for a seemingly sustainable situation to become very difficult.
Facilitating access to credit can help a family buy a house. But easy credit does not create housing.
This distinction is fundamental.
If we increase the financing capacity of buyers without sufficiently increasing the number of available houses, the result may simply be more money competing for the same properties. And, in a market with scarce supply, this can contribute to putting even more pressure on prices. A measure created to facilitate access to housing may paradoxically end up making houses even more expensive.
That is why we should not confuse housing policy with credit policy. The Government has the responsibility to create conditions to increase supply, accelerate licensing, mobilize land, encourage construction and rehabilitation, promote a functioning rental market and ensure legislative stability. The Bank of Portugal has another mission: to protect financial stability, banks and, ultimately, families themselves against debt levels that may become unsustainable.
The two policies should dialogue, but they should not be confused.
There is yet another sign that deserves attention. Some experts are beginning to highlight the growing presence of investors in the market who are not final consumers of the properties. I do not consider this, in itself, negative. Investment is indispensable to finance projects, increase supply, rehabilitate buildings and develop new housing models. Demonizing investors would be a profound mistake, especially in a country that needs capital to build.
But here too, it is necessary to distinguish investment from speculation. The long-term investor who finances construction, leasing, urban regeneration or new infrastructure performs a very different economic function from those who enter a market exclusively in the expectation of selling quickly at a higher price. The greater the distance between the value of assets and the real economic capacity of their end users, the greater our attention should be.
Real estate Portuguese is currently experiencing an apparently contradictory situation. We urgently need more investment and, at the same time, we need prudence. We need more credit to finance construction and, at the same time, responsible criteria to avoid excesses. We need national and international investors, but also to ensure that there is a real economy capable of sustaining asset values in the long term.
These ideas are not incompatible. On the contrary, they are part of the same strategy.
A healthy real estate market is not one where prices always rise. It is one where there is sufficient supply, sustainable demand, responsible financing, solid companies, long-term investors and families able to meet their commitments without sacrificing an excessive part of their quality of life.
Portugal has learned a lot since the last major financial crisis. Banks are better capitalised, companies have better financial indicators, the relative weight of the sector´s debt is significantly lower and supervisory mechanisms are more demanding. It would be wrong to ignore all this progress and announce a new crisis just because the nominal value of debt has returned to levels similar to those of 2013.
But it would be equally wrong to believe that these advances have made us immune to economic cycles.
Interest rates change. Demand changes. Governments change policies. International markets suffer shocks. Confidence can disappear faster than it appears. And real estate, precisely because it works with large amounts, high leverage and long development horizons, must respect this reality.
My view of the Portuguese market remains positive. There is demand, there is a structural need for more housing, there is investment, there is greater professionalization and there are companies that are much more prepared than in the past. But being optimistic does not mean ignoring risks. On the contrary, the best way to defend the growth of a sector is to identify its risks before they become problems.
Portugal needs to build more. It needs more investment. It needs national and foreign capital. It needs credit to finance good projects and banks capable of accompanying solid companies. But it also needs financially protected families, developers with adequate levels of capital and investors who understand that no market rises indefinitely.
Credit growth should not scare us when it accompanies productive investment, increased supply and more financially sound companies. But history teaches us that the greatest risks often begin precisely when we no longer believe that risks exist.
Real estate is Portuguese stronger today than it was a decade ago. More professional, more diversified and more prepared.
The best way to stay strong is not to lose your memory.
And, above all, not to confuse confidence with overconfidence.