Portugal property 2015 market report

AWARD WINNING PROPERTY EXPERTS

Portugal & The Algarve Property Market 2015 Report

Europe – A Market on the Rise Each new year brings a new set of challenges to the real estate market, both the foreseen and the unexpected, but the European market has seen more than its share in the last decade. In the past six years alone, Europe has experienced a major recession, moved into a short recovery period, and followed it up with the sovereign debt crisis. That is a huge amount of upheaval in a short period of time. The good news however is that what goes down must come up, particularly in terms of the real estate market, and Europe as a whole in now in a period of recovery. Although the rate of recovery varies widely across the continent, the upward trend has produced significant opportunities for investors, occupiers, and developers.

In fact the main deposit rate of the ECB (European Central Bank was lowered to -0.1% in June as part of a move to encourage banks to increase lending and stimulate economic growth. As a result, most real estate markets in Europe are drawing in new investments and seeing gradual, but sustained improvements in occupier demand.

Where does Portugal stand in the Overall Picture?

Economically, Portugal has had its back to the wall since the culmination of the financial crisis in 2010 and the government’s agreement to a massive, €78bn bailout. In the years since, Portugal has been slowly, but consistently responding to the austerity measures taken by its government. These measures have included tax hikes and reductions in public spending and they have resulted in new growth that can be most easily viewed through the country’s real estate market.

Although it had lost in excess of 30% of its value in the years since 2007, 2014 saw a significant rebound in Portuguese real estate prices. This rebound can be attributed in part to an increased amount of interest shown by foreign investors. The price recovery remains steady and is supported by consistently growing sales activity as well as by rising demand according to RICS and Confidencial Imobiliario’s most recent Housing Market Survey. In addition, after an eight month period of stability, housing prices showed their first increase since the inception of the survey in 2010.

In 2014, prices for residential properties rose nationally between 9% and 15% and the housing market in Portugal is still experiencing growth. During the year leading up to March, 2015, property prices rose by 1.81% (in real terms 1.50%), bringing the average price to €1,011 per sq. m. ($1,104.72 USD) according to INE (International Statistics Portugal).

Expectations point to ongoing, robust market growth in the near future, even though the net balance slipped slightly from May’s record high. Respondents are anticipating that property prices will go up by 2.7% nationally with the strongest recovery to be in the Algarve and Lisbon (around 4-5%). Projections for Porto remain somewhat weaker at around 2%, but that gap is narrowing somewhat and the national confidence indicator now stands at +36.

As we mentioned above, foreign investors have played a large role in the growth of Portugal’s real estate. What makes Portugal, and particularly the Lisbon & the Algarve regions, so attractive to investors?

A Mediterranean Paradise One of the reasons that Portuguese properties catch the eye of potential investors is the country itself. The capital Lisbon is one of the best and most beautiful cities in the world which offers superb property investment solutions and it is no surprise it makes up near 50% of sales within PortugalProperty.com. The Algarve region is more beautiful than most. It is among the most visited of all the tourist destinations in Europe and its popularity grows by the year. It is renowned for the sun, the sand and the many things to see and do. The climate is a Mediterranean one with a broad array of golf resorts and beaches. Low cliffs house picturesque fishing villages that have since become tourist attractions in their own right.

Fish, seafood, citrus fruits and carob beans as well as almonds are important parts of the scenery and the economy of Algarve.

Maintaining just around 5% of Europe’s second home market by volume and 12% in value, Portuguese property has long been considered a solid market. The region is renowned for its sunny beaches, Mediterranean climate, vast, sprawling golf courses, and the huge variety of things to do and see. Even the small fishing villages that dot the low cliffs have become something of a tourist attraction as people are drawn by their quaint charm and simple lifestyle. In terms of second home locations, Portugal is the fourth largest market, being topped by only Italy, Spain, and France.

In addition to a superb climate where you can golf comfortably in summer clothing all year round, in a world of political upheaval and sometimes violence, Portugal is a welcoming haven for all. Portugal has clear fiscal rules, no political strife, is tolerant of all religions, and a friendly, welcoming population. Portugal received a score of 1,344 in the Global Peace Index 2015, which reflects a very high state of peace. No matter what part of the world you hail from, Portugal offers wonderful conditions for those wishing to purchase a second home, whether as a vacation home or for retirement purposes.

British & Irish buyers have traditionally predominated in the Algarve region, but recent years have seen investors from many other European countries begin to play a role. Sales to investors from Holland, Germany, France, Sweden, Denmark and even China & Russia have begun to pick up in recent years.

Supply and Demand Supply and demand is the very cornerstone of economics and it is another reason that foreign investors are taking a closer look at Portugal today. There wasn’t a large price bubble in the region and there isn’t an excessive amount of empty stock today. There are very few new build properties & developments being built. In fact, the supply of new product is low and the demand is rapidly beginning to outstrip the supply.

During the financial crisis, developers weren’t producing new constructions and the Algarve region, particularly in the Golden Triangle, Vilamoura & Lagos, is quickly becoming unable to keep up with the demand.

Year on year, in 2013 the number of completed constructions for family housing fell by 36.1% and continued to plunge into 2014 with completions falling a further 54%. In addition, in 2011 the number of permits for the construction of new dwellings fell to 17,085. Those numbers are down from a yearly average of nearly 120,000 units in the years from 1998 to 2001.

That puts the Portuguese real estate market at something of a turning point. With demands that are growing more rapidly than the supply, it is nearly a foregone conclusion that existing prices will be driven up and that means the perfect time to invest is now, before prices begin to rise even further. This is prompting many investors to move now while the time is right.

Supply and demand is making an impact on the rental market as well. Solid growth of demand has been coupled with a significant decline in new rental listings by landlords. While rents have remained more or less stable in recent months, with excessive demand and limited supply, prices will very likely rise in the future. What these things mean to foreign investors is that a modest investment now could reap very large returns in the near future.

Golden Visa In an effort to draw more foreign investors, the Portuguese government launched what is known as the Golden Visa scheme in October of 2012. The program is quite simply put, a fast track by which non-European foreign investors can obtain a valid permit of residency in Portugal. With very flexible and straightforward requirements, the Golden Visa is aimed at bringing in foreign investors and it has done just that. The very low minimum stay requirements have made it among the most appealing residency programs for investors worldwide.

The permit grants the holder the liberty to enter and live in Portugal as well as the ability to travel at will among Schengen space (the majority of countries in Europe). When the program began, an investment of €500,000, but the amount has since been lowered to €350,000, making the scheme more popular than ever. In the span of time between its launch in 2012 and the latter part of June, 2015, the scheme has brought in €1.47 billion in foreign investments. Of that amount, €1.33 billion (or 90%) was generated through real estate purchases and accounted for 2,289 Golden Visas. Other governments are taking their leads from the scheme’s success. In 2013, an equivalent scheme was launched by the Spanish government and as of March 2015 had generated approximately €700 million and granted visas to 530 foreign buyers. According to numbers released by the Portuguese Immigration Services, the highest number of investors comes from China, followed by Brazil, Russia, South Africa, and Lebanon. Guo Guangchang, the chairman of the Chinese group Fosun, “Portugal has become a gateway to Europe and that it welcomes Chinese investment.”

He also stated that one of the attractions is that “the costs in Lisbon are not as high as in other European cities”.

The NHR (Non Habitual Residency Scheme) This tax regime was instituted in 2009 and allows the tax resident exemptions from personal income taxes on specific types of foreign income such as non-Portuguese salaries and pensions. In order to qualify you must not have been a tax resident of Portugal for the previous 5 years and who spends at least 183 days (consecutive or non-consecutive) in Portugal.

Eligible tax residents are able to maintain the NHR status for up to 10 years. Over 1,000 individuals have already been approved for this status and another 400 applications await approval.

The largest bulk of NHR tax residents come from the European Union, (chiefly Ireland, France, Sweden, Switzerland, and the Netherlands) as well as from Brazil.

What does this mean to Investors?

INTEREST RATES

13.85% 2.41%

(Jan, 2012)

(May, 2015)

52%

INCREASE IN SALES, COMPARED TO THE SAME PERIOD IN 2014

€1.54 EXPECTED EXCHANGE RATE PER POUND BY THE YEAR 2016

A combined set of circumstances have made Portugal among the most tempting property investment options in Europe. Low interest rates, along with foreign exchange rates that are very favourable have made very positive impacts on Portugal’s real estate sector.

Interest rates that plunged from 13.85% as of January, 2012, to an astonishing 2.41% as of May, 2015 have induced many mortgage providers to slash their rates. In addition, the exchange rate of Pounds to Euros has many British investors taking special notice of Portugal this year. In fact, Goldman Sachs has speculated that the exchange rate may reach €1.54 to each pound by the year 2016 making UK buyers even more ecstatic about how far a pound will stretch when it comes to real estate in Portugal.

As confidence returns and the demand for property outweighs the supply, prices will inevitably rise. While that is exactly what the economy of Portugal needs to continue on its path to recovery, it also means that now is the time to invest. The market is set to rise in the coming months and property prices are still low enough that the return on a well-chosen investment will be significant within a short period of time.

From the 1st of Jan 2015 till the end of August 2015 here at PortugalProperty.com we have seen an increase in sales of 52% compared to the same period in 2014.

As a good investor, you know that it’s imperative to wait for precisely the right moment to make your move. All of the numbers, all of the facts, and all of the forecasts for the future of Portugal’s housing market point to one thing; that the time is now.

As we like to say in our PortugalProperty.com offices acrossPortugal - Onwards and Upwards.

www.PortugalProperty.com

Lisbon Office: Avenida da Liberdade 240-4 esq, Lisboa, 1250-148

Golden Triangle Office: Rua Cristovao Pires Norte, No368, Loja A, Almancil, 8135-117, Loule

Vilamoura Office: Avenida da Marina, Edif Marina Plaza, Loja 71, Vilamoura, 8125-401

Lagos Office: Rua Dr JoseĚ Francisco Tello Queiroz, Lote 1, Loja M, 8600-707 Lagos

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