The area has been a hive of activity. The buzz in the property market this summer was exciting. Numbers are up and not only in numbers of visitors to the area, but also in the amount of property sales! We have had our best year ever, and sales have already exceeded €110 million so far.
As our market continues to be dominated by the British (60%), the question we are regularly asked is: Has Brexit affected the market? Surprisingly our buyers and vendors over the past 8 months say No! Brexit has not influenced their decisions.
Digging a little deeper, we have made some interesting observations. Most of our sales (55%) are due to people selling and immediately reinvesting in another local property. Our clients seem disinclined to take their money out of this Euro based property market. So, indirectly Brexit is having an effect on the market as the Pound continues to lose its value during the somewhat chaotic negotiations in Brussels. Our clients feel their Euro based assets are a “safe bet” and as the predominant reasons to buy continue to be lifestyle, decisions to own a property here seem elementary.
New buyers to the market (40%) are also influenced by the fluctuation in the currencies. Today's buyers are sophisticated and well informed and many, who have been flirting with a purchase, have decided not to wait for the Pound to decrease any further and make that purchase now.
So, yes Brexit is having an influence but, as no one really knows what it will mean, the current effect of Brexit is the falling value of the Pound and yes this is having a profound effect on our client’s local property investment decisions.
Supply and Demand
So we have almost all of our sellers reinvesting in property (95%) and many new buyers coming into the area and the obvious consequence of this is a lack of property on the market. Buyers have over the past 10 years never had as little to choose from as they do now and this is pushing prices up.
Up until the end of last year beautiful big villas within our area were regularly achieving around €4.5 million. This year we have seen this threshold increase significantly with more houses being sold for between €5 million and €8 million and some even at over €10 million.
Some may find this astonishing but Savills research shows that when compared to other European markets our top property prices have some way to go. Top prices achieved in France for second homes bought by foreigners have reached in excess of €25 million over the past 12 months.
We do not doubt that many of our clients could and have owned properties in these other areas but choose the central Algarve now for the following reasons (the most common answers and in no particular order): ease of access, weather, security, food, people, no global wealth tax, the NHR program, no traffic and last but certainly not least, they have been coming here with their families for years. It literally is a second home to many UK buyers.
Having said all that, the actual number of British buyers is the same but the actual percentage of Brits is down from 75% in 2016 to 60% so far this year. There is no major change to the number of Irish buyers at around 10% but what we are happy to observe is that for the first time in many years we have a significant number of German and Swiss buyers equalling 12%.
The remainder of the buyers are from other northern European countries and a small number are from outside of Europe. A healthy mix of buyers makes for a healthier market. Interestingly enough, here in our area and in stark contrast to other markets around Portugal and the Algarve, we have no French, Scandinavian, Italian, Middle Eastern or Chinese buyers at all.
And it is not all rosy. Where our market cannot compete, is in rental income. Running costs are high and even if properties are rented out aggressively, after costs are paid yields are not exciting. This explains why our market does not appeal to the Golden Visa buyer, who generally invests between €500,000 and €750,000 and, as these buyers do not need to occupy their properties at all, they do insist on rental income.
Developments like Pine Cliffs, Amendoeira and the new Ombria Resort who offer guaranteed rental income and city properties in Lisbon which rent well to long term tenants, are far more attractive to the Golden Visa buyer than a villa in Quinta. Well, we can’t win them all!
High costs do pay off
On the bright side, the high running costs contribute to the spectacular environment of these two resorts. Infrastructure and facilities are second to none and with the continued reinvestment of the developers, buyers confidence runs high and we are seeing demand outweigh supply. This has increasingly been the case over the past 5 to 7 years with many older properties (15 years and older, generally!) being demolished and replaced with big new state of the art properties which according to our Savills colleagues around the globe compete well with the very best properties they have seen.
New developments and a new era for the Algarve
Developers are keenly aware that wealthy travelers from around the globe are interested in the Algarve, so much so that they are branding their new projects with some of the most impressive names. A new development in Galé will be operated by Marriott’s most glamorous branch, the W.
Due to open in the winter 2018/19, this beachfront resort will comprise of a very glitzy 136 room 5 star hotel with spa restaurants and over 80 branded apartments. Anantara are already in Vilamoura and the big new development behind Loulé currently under construction, Ombria Resort will be operated by the Viceroy group.
Exciting things are happening. The sleepy Algarve has come a long way since tourism began in the 60s. Who would have guessed?
