OECD Focus on House Prices

According to the OECD, Portuguese house prices are the lowest in Europe on a rental yield basis, receiving a score of 83 compared to 84 for Greece, 91 for Germany, 104 for Spain and 134 for UK. A score of 100 would be in line with the long term average, making scores significantly below 100 a “buy”.

On an affordability basis, taking national wage levels into account, Portugal at 94 fares better than Spain at 107 or the UK at 125. Portugal is a clear ‘buy’ on both measures.

Based on rental yield, the most expensive houses in Europe are in Norway (164), while the most expensive based on affordability are in Belgium (147). The cheapest on the affordability scale are in Germany (83). According to this survey, the most attractively priced houses worldwide are in Japan, with scores of 62 for yield and 63 for affordability. The least attractive are in Belgium, Canada and New Zealand.


For anyone considering a house purchase in Portugal, the only note of caution in the OECD report is that Portuguese prices still appear to be falling, with an annual drop in real terms of 1.6% (to end Q1 2014), but this fall is much lower than Spain’s, at 4.9% for 2013. RICS/CI Portuguese Housing Market Survey for April 2014

This snapshot monthly report concludes that, although Portuguese prices are still falling, they are falling at the slowest pace since the survey started in 2010, and that price expectations have turned neutral, indicating that prices are close to stabilising. Knight Frank Global House Price Index for Q1/2014

According to Knight Frank, prices worldwide rose by 0.6% over the quarter, down from 1.2% in the previous quarter. Annual price growth was 7.1%. Prices worldwide have risen in the past eight consecutive quarters.

Portugal fell 2.1% for the last quarter, but rose 1.2% on an annual basis, showing better in this survey than in the OECD or RICS/CI survey. Spain fell 4% on an annual basis, echoing the OECD figures and supporting the proposition that a recovery is closer in Portugal than in Spain. This is not surprising considering the much greater volume of unsold Spanish housing stock.

Of the 54 countries surveyed, 14 showed a decline year-on-year. 12 of these were in Europe but, despite this, Europe as a whole showed a small increase year-on-year, with 20 countries in positive territory. Estonia was the 3rd best performer overall, with year-on-year growth of 16.2%. Property markets are cyclical. The best time to buy property is when prices are turning positive after a sustained downturn. It appears that Portugal is now at precisely that point in the cycle.



ECB monetary easing

The long overdue monetary easing announced by the ECB on 5th June, mainly to counter the threat of Japanese-style chronic deflation, will boost the overseas property sector, according to OPP Connect.

The easing measures have reinforced the downward trend in bond yields of the euro crisis economies. The mood is that the worst is over and that not only the central bank but the politicians will continue to ‘do what it takes’ to preserve the single currency. The announcement triggered a fall in the 10-year Portuguese bond yield of 13 basis points to 3.51%. This rate reached an all time high of 18.29% in early 2012, only a little over 2 years ago. Portugal plans to sell as much as 750 million euros of securities on 11th June in the nation’s second auction since exiting its three-year bailout program.


The ECB measures should feed through to bank lending practices, stimulating increased mortgage lending at higher LTVs and lower spreads. This in turn will result in a higher volume of property transactions and some price recovery. ECB easing is also helping to reduce euro exchange rates, making Portuguese property cheaper for non-eurozone buyers, and especially the British, who have historically accounted for 50% or more of the market for Algarve leisure and retirement real estate.


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