Portugal is preparing to liberalise its energy market, and domestic electricity prices are expected to increase by 2.8% next year. The increase is being proposed by the Entidade Reguladora dos Servicos Energeticos (ERSE), and would represent an increase of an extra €1.24 on the average monthly bill of €47.
This tariff will operate from the beginning of January until the end of March next year, and further price updates will be given at three monthly intervals until 2015, by which time it is expected that the electricity market in Portugal will be completely liberalised.
The energy market in Portugal is being deregulated as part of an agreement between the Portuguese government and the Troika, in an effort to try and cut the country’s budget deficit. The increase will affect around 5.6 million domestic consumers, and a similar proposal for an increase in tariffs for natural gas is expected to be made in December. Those on lower incomes will see their electricity bill increase by a lower percentage which will remain the same for the whole of next year.
A succession of governments have continually protected domestic consumers from paying the true cost of electricity though regulated price fixation, which has led to an electricity tariff deficit of around €1 billion. This deficit is expected to take another eight years to resolve. Apparently the ERSE will continue to recommend energy tariffs to try to ensure that the deregulated market has a tariff reference, helping to prevent huge price increases during this transitional phase.
The current crisis afflicting Portugal is creating a number of new investment opportunities, and the country’s appeal to overseas investors is increasing. The tough austerity measures have meant that many Portuguese homeowners have had no choice but to sell up completely or to downsize, and the recent budget will not help this situation.
Lack of access to financing is preventing those who are still financially stable from buying. All this has placed downward pressure on house prices, even in areas such as the Algarve which have traditionally been more expensive and in demand with overseas buyers. Even though the number of properties on the market is plentiful, it hasn’t been caused by overbuilding, and Portugal may well be a much better risk than other countries facing similar problems with their economy, such as Spain.
The key to investing in any foreign country is always to research the market and area thoroughly, and to learn as much as you can about property in the region. People considering living in Portugal full-time may be better off renting first of all, to really get a feel for the area.
Some areas are particularly good for retirees, while others such as Lisbon and Porto may be more suitable for those investors who hope to rent out their property. Buying property in Portugal is relatively straightforward, but it is important to have assessed whether the property is correctly priced, and to employ a good solicitor who is able to give the correct advice on taxes, procedures and other necessary legalities.
Portugal is still a top choice for many buyers looking for a second home in the sun, in spite of the economic difficulties faced by the country. Buyers from Northern Europe and Britain are particularly fond of the Algarve and the Silver Coast, and estate agents are still receiving pretty high levels of enquiries from buyers looking to purchase correctly priced property. Many are cash buyers, and are able to take advantage of the extensive price falls that have occurred since Portugal entered recession more than two years ago.
This market for second homes hasn’t been affected as much as the primary housing market. In spite of this, buyers are unwilling to even look at properties they feel are overpriced, and sellers do need to be prepared to negotiate. Obviously those buyers who are able to complete a purchase quickly are far more attractive to sellers, and as such may be able to find their dream home at a reasonable price.
It is a bit of a different story elsewhere, as estate agents in Portugal have found that in areas primarily driven by demand from the domestic market, the price falls have been more substantial, especially in the mainly residential cities of Lisbon and Porto. Some sellers in these areas don’t have a choice as to whether or not they sell their home, as they may need to move to seek employment elsewhere or to be nearer their children’s school.
Even though these sellers are faced with a falling market, they are able to pass on these price reductions throughout the chain. An increasing number of people are being forced to sell due to unemployment, the threat of repossession, or simply because they cannot afford the higher interest rates.
Portugal is trying its best to entice overseas buyers to invest in property and businesses in the country. At the beginning of next month it will introduce a new piece of legislation that will extend long-term visas to non-residents who are willing to bring capital into Portugal.
Apparently the new rules for eligibility will include the purchase of a property worth at least $500,000, or starting up a business that will create at least 30 jobs. Alternatively a visa will be available to those transferring at least $798,913 in capital.
It’s hoped these new regulations will help boost property sales, especially within the resorts and second-homes sectors. Figures from Global Property Guide show land values have fallen by 10.95% since the second quarter of last year, and the country still needs extensive austerity measures to try to restore its finances.
These austerity measures are to include higher income and property taxes, and are likely to be implemented sometime next year. Even though these new visa regulations may help a little, Portugal will still need to do a lot more to help it pull out of its third year of recession and into economic recovery.
It is likely that income taxes will increase from their current rate of 9.8% to 11.8%, although both of these rates still sound pretty low in comparison with many other countries around the world. Even so, Portugal’s largest union is to call a general strike for the middle of November. In spite of all this property in Portugal is looking like a pretty good bet, although anyone contemplating purchasing a home should take these higher taxes into consideration.
The Algarve has traditionally been a popular destination for second home owners, and it’s easy to see why. It has a temperate year-round climate, and more than 3,000 hours of sunshine annually. The Algarve offers a great lifestyle to visitors and residents, and can offer just about every outdoor activity you can think of; one of the most popular is of course golf.
It has around 155,000 m of sandy coastline, and endless coves and bays to explore. There’s even a mountain range just 30 km away from Lagos. The region is rich in history, and one of the nicest places to visit is Silves which is the former Moorish capital of the area. It has its own castle complete with 11 turrets and impressive battlements. Next door to the castle is a cathedral, complete with ancient tombs and Gothic monuments.
Much of the economy in the Algarve centres on agriculture and fishing, with wine production and seafood being especially important. However the area is still quite reliant on tourism and this is responsible for providing much of the local income. Although Portugal is currently undergoing some financial difficulties, the Algarve will always remain perennially popular making it one of the safest places in which to invest in property.
The area is served by the main airport at Faro which is able to handle up to 6 million passengers annually. The airport is currently operating at full capacity and there are plans to expand the terminal to enable it to deal with 8 million passengers. Some of the most popular routes originate from the UK, coming in from Manchester London and Dublin airports.
Both Moody’s and Fitch ratings have both warned that Portugal may need to extend its bailout plan due to the public outcry against further tax increases and the continued weak economy which are likely to delay the recovery.
Moody’s is anticipating that Portugal may require financial support to be extended beyond September next year, and is fully expecting that the country will receive another European Union/ International Monetary Fund programme before regaining access to government bond markets.
It looks likely that more austerity measures will be necessary for Portugal to keep on track with its deficit reduction program even though fiscal targets were relaxed last month. This is because the measures needed to meet even the easier targets are more substantial than expected, and this is at least partially due to a decline in revenue.
Portugal is currently in a €78 billion bailout program that is due to end in June 2014, and the country is currently expected to gradually regain access to long-term debt markets by September 2013. At the moment Lisbon is insisting that the adjustment program will not need to be extended. This is in spite of the fact that the government decided not to go ahead with a planned social security reform after extensive protests, and the country has also had significant shortfalls in tax revenue.
The Social Security reform has been replaced with large tax increases that will be the equivalent of around 2% of economic output next year. However the government’s decision to reverse its social security reform plan has led to worries that demonstrations will be mounted in the future to overturn any unpopular economic decisions. The biggest trade union federation in Portugal has already called a general strike for next month.