As long as snowbirds fly south in the winter...
By Kerstin Buechner, Director and Co-Owner QP Savills
As I sit down to write this latest report on our property market here in the Algarve I actually do not really know where to start. Having just returned from a beautiful dog walk with blue skies and 20C (68F) in mid-January, it’s hard to assimilate all the gloomy information one reads in the papers with the reality here on the ground in Quinta do Lago.
One of my first jobs every new year is to look at our results from the past year and compare them to previous years. The stats have now been finalised and as hard as you may look, there is no sign of a “pending downturn” that some have predicted.
Before I share some of the trends I am seeing, I would like to point out that we work in the very top end of the property market in the Algarve. Our average sale price is just over Euro 3m, and our property portfolio does feature some extraordinary properties. To put this into a global perspective, over the past couple of days we have had the great pleasure of hosting and showing Jonathan Hewlett, Chairman of The Private Office at Savills, some of the properties currently on our books. He was impressed and confirmed that, with the local environment, facilities and lifestyle, our properties certainly live up to the standards of the best he has seen worldwide. The Savills Private Office handles single property transactions of up to GBP 100m - to 200m with some regularity and there is no doubt that Johnathan knows a good property when he sees one.
And we are incredibly excited that for the first time, we have achieved a price tag of over Euro 20m for the sale of a single private residence.
This is Portugal´s highest-ever residential sale exceeding that of Christiano Ronaldo´s purchase in 2022. Impressive for our market, yet compared to other second-home markets, such as the south of France or Miami, where 8-figure price tags are quite the norm, our prices are still baby prices. Here, property values have a lot of growing up to do. Contrary to popular belief, there is still much room for growth!
In 2022 total global wealth grew by 9.8% and there were 5.2m new millionaires. These High-Net-Worth individuals are driving our market and seem unperturbed by the increasing interest rates, and many are choosing to place their wealth in Euros and Algarvian real estate.
The number of enquiries coming to us from people interested in buying properties in 2022 was up by 34% on the previous year. Portugal is a hot topic of conversation, and not only in Europe. Americans, mainly from the west coast have discovered Portugal now too and they are the most numerous of the newcomers. Portugal has the climate, the lifestyle, a favourable tax regime, the Golden Visa scheme, attractive low cost of living, and it continues to win global awards to name a few: ´Best Country for Expats to Live in´, ´Safest Country to Live in´, ´Best Country to Retire to´, ´Best Golf Course Destination´, ´Best Beaches´ etc. etc. No surprise to us already living here, but Portugal has become seriously trendy across the world, and we haven´t even mentioned the food and the wine yet!
20 years ago, the central Algarve was a destination for retired golfers mainly from the UK and to a smaller extent Germany. This is very different today with the average age of our buyers in their mid-40s and a real mix of nationalities. Golf is just one of the many popular activities.
The British continued to be our largest group of buyers at 80+%. Today this has shifted to 69% and our clientele is becoming a little more international. 25% are from mainland Europe and 6% from further afield. Mainly from the USA and India.
Digital nomads and young families make up a large proportion of our new buyers and they are not buying holiday homes. They are buying beautiful permanent homes in the best locations with big price tags. If they do not plan to live in them permanently, they certainly plan on spending much more time here than just their summer holidays. They tend to be cash buyers with only a handful requiring mortgages.
There seems to be a strong preference for purchasing finished properties or those that need refurbishment over plots of land to build upon. This is probably partly due to the increase in construction costs (official figures say there is a 12.5% increase nationally although this figure is likely higher) and possibly even more importantly, the insane amount of time it can take to get plans approved. There is also the scarcity factor. Building regulations are tight and there are so few sites left to develop. All of these factors of course contribute to the increase in property values.
Ever since Alison, my business partner & sister, and I started this business over 20 years ago we have frequently been told by our clients that prices have reached their ceiling and are due for a correction. In 2008 we, like the rest of the world, were affected by the sub-prime crisis but the market was not suddenly flooded with properties and prices did not drop. Demand slackened slightly but it was not dramatic. And why is this?
I believe it has a lot to do with the enormous strength our clients have in terms of wealth. For many, their properties here are just a small proportion of their global assets. They have not overstretched themselves to buy properties here and are not servicing huge mortgages. Yes of course they enjoy the growth they see when their asset here appreciates in value, but primarily our clients buy here to enjoy spending time here. When times are tougher and a possible sale is not as lucrative as at other times, they just don't sell which creates a shortage of stock which underpins prices.
So why are prices so much lower in Portugal than in other competing second-home markets?
Perhaps it is because Portugal is a late bloomer. It was for many years a cheaper destination and disregarded by many. It was Europe’s poor relation. Prices were low and stayed that way, while other second-home markets saw their popularity and property values increase. Maybe they were just better at promoting themselves than Portugal was.
Well, spring has come to Portugal. Not only are the Almond trees in full bloom as I look out of my window, but it seems our market is too.
I gave up trying to predict the future of our market many years ago. Nonetheless, with demand still outweighing supply, I cannot see that there will be a downturn in the market anytime soon. Our market continues to plot its own route and continues to prove that it is less susceptible to global forces than many other markets.
The legacy of Covid has left us with a fresh appreciation for a healthy lifestyle and this paired with a greater ability to work from home is only fueling our market further.
Snowbirds fly south because the environment there suits them better, something they seem to have in common with our clients.
For more information or great advice if you are looking to buy or sell, call us!
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