The world economy has undergone an unprecedented recession as a consequence of the coronavirus pandemic, halting the activity of entire sectors and causing an unavoidable rise in unemployment and bankruptcies.
Precautionary measures such as telework have emptied office buildings and city centres, as well as deeply damaged the growth of small businesses and liberal professional activity. Forced to intervene to mitigate social pain, governments have relied on increasing public debt to supply emergency help.
Experts anticipated that these combined factors would lead to a decrease of real estate prices. Instead, an increase has been observed, which can be attributed for the most part to the recent economic policies implementedworldwide. Governments continue to pour money into public services and private businesses, as well as households, with near-zero interest rates. As a consequence, traditional strategies for savings, namely cash, bank accounts and bonds, are being replaced with cryptocurrencies, stocks and real estate, the latter being perceived as safer or more pertinent options amid the present troubled times.
What can we expect in the near future?
The availability of effective vaccines has made it possible for a robust economic recovery in 2021, but the historically low interest rates create an environment where the rational link between the yield and the value of assets is fragile.
The threat of rising inflation, accompanied by an increase in nominal interest rates, could bring heavy consequences to the real estate market. On the other hand, this context of low interest and inflation rates could be maintained for several years, and is in fact the prediction of a majority of analysts.
In short, caution among experts is imperative in drawing up forecasts and predictionsfor the near-future of the real estate market, in particular by highlighting the risk and uncertainty of the current context.
Francisco Costa Gomes
Associação Portuguesa dos Peritos Avaliadores de Engenharia