The sale of houses and the economy: dependencies, risks and opportunities!

The sale of houses and the economy: dependencies, risks and opportunities!

In most western countries, including Portugal, residential Real Estate contributes substantially to the economic activity: in our country the volume of residential transactions reached around EUR 25,000 million in 2019, corresponding to 11.80% of the GDP for the same year (EUR 212,300 million). 

It is also an important source of tax of significant amounts, normally, of secure and immediate collection. Note that in 2018 alone the Council Tax (IMI) was approximately one billion Euros, and the Transmission Tax (IMT) approximately one thousand seven hundred million Euros. This means a tax revenue in the property market of circa4% of the total tax revenue in Portugal. 

We all know, though, that residential Real Estate is volatile, as history and other overcome crises in Portugal may teach us. The most important fact during this is that fluctuations in prices and residential investment have a direct impact on the macroeconomic environment of our country and on the solvency of families and financial institutions. In the West, the vulnerability of the housing market is an amplifying element of the economic contraction, sometimes this vulnerability was the fuse that gave rise to these movements. 

On the other hand, a solid, stable, and balanced residential real estate market protects the economy from uncertainty and keeps the economy secure and firm. In the case of Portugal, this has been the case in recent years and has created the country's recent economic recovery.  

The aspects mentioned above, and often published, about how important the real estate market is for the sustainability and economic security of the country, are oddly often ignored by us, forgotten, or undervalued by governments everywhere. "The residential real estate market and its good functioning is essential for the health of economies and for their resilience in the medium and long term". 

Democratic governments have many tools to make the housing market work, supported and encouraged. One example should be that practiced in Germany: the individual who lets his/her or her house does not pay taxes on rental income, as he/she is providing housing space for society and others who may not have that possibility otherwise. At the same time, the owner of this property is preparing his or her well-being in the retirement phase by adding to his/her income based on the rents of their homes. If this model was followed in Portugal, it would create social housing space with adequate rents that is so needed by Portuguese society. 

Text: Paulo Lopes 

Picture: Raten-Kauf by Pixabay 

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