Estate agents in Portugal now believe the market is stabilising, having experienced several years of falling prices. Immediately after the financial crisis prices dropped by up to 30%, but last year the market began to correct itself. Property prices for luxury homes dropped considerably less, falling by 15% to 20%. This is probably due to the fact that wealthier buyers are less likely to have mortgages, while others reliant on funding would have found it more difficult to obtain a loan due to tighter lending restrictions.
Luxury apartments in the centre of Lisbon currently cost between €5,000 and €6,000 per square metre, while apartments in less upscale neighborhoods currently go for around €5,000 per square metre. Older apartments in Amoreiras are likely to cost between €3,500 and €4,000 per square metre, while newer apartments could cost as much as €5,500 per square metre. The Estoril Coast, just half an hour’s drive from Lisbon is popular amongst surfers and for its casinos. Apartments here can cost as much as double as those in the city.
Most overseas buyers are looking for property in Lisbon or the Algarve, and around 60% of buyers in the Algarve are international. Most are from Britain, although the area is also popular with buyers from Spain, Italy, Scandinavia and Germany. The market in Lisbon is a little different, as it’s not so heavily dominated by the British, and just 15% of the property is sold to overseas buyers. Purchasers include those from Western Europe and Russia, as well as buyers from Angola and Brazil, as these countries are Portuguese speaking.
Portugal has been praised by the International Monetary Fund for the progress it has made towards regaining access to international debt markets. The IMF has also just approved payment of the next part of the rescue loan for Portugal, worth some €838.8 million.
The approval came as Lisbon has successfully completed its latest review. In spite of the praise given out, the IMF has also warned challenges still remain, and the Portuguese central bank recently forecast the economy would shrink by 1.9% this year which is slightly more than had been previously predicted.
Lisbon is due to gain access to the international debt markets this autumn, but is already considering an early return to the medium and long-term bond markets as it’s been buoyed up by the recent success of the Treasury bill auction. Last September the troika agreed to give Portugal an additional year to meet its deficit targets, as the budget deficit target last year was increased to 5% of national output, while the target for this year was increased from 3% to 4.5%.
This resulted in the government making stringent budget cuts as part of the necessary reforms. Although recent progress has been extremely good, the IMF is still warning that the Portuguese government needs to make sure structural reforms are pursued and met, as this is the only way to ensure long-term growth and employment, and an improvement in the country’s competitiveness. The IMF conceded that Portugal will need continued external support from the euro zone in order to achieve success.
According to Christine Lagarde, chief of the International Monetary Fund, Portugal is on track for meeting the targets set by international creditors even though the country is still at risk due to high unemployment. The Portuguese people received praise for being able to carry out such painful but necessary reforms.
In May 2011 Portugal received a €78 billion bailout from the International Monetary Fund and the European Union. In exchange the country had to agree to carry out a three-year reform programme that has resulted in unemployment increasing to more than 16%, and which has plunged the country into a deep recession. Although the IMF is concerned about the high unemployment levels, it is confident structural reforms will help increase growth levels, and will create jobs in the longer term.
The reform programme is now two thirds of the way through, and Portugal recently implemented even more tough measures, including tax increases. However the Portuguese president, Anibal Cavaco Silva, recently announced that he has asked the highest court in the country to decide whether or not this year’s austerity budget is constitutional.
He is concerned that the budget will result in a lower level of income for many citizens, as well as lower social payments. He feels that while everyone will be affected by these measures, that some will be far more affected than others, and that this may be unfair. He has pointed out that the tax hikes will lead to lower output and a decline in tax revenue. The average rate of income tax will increase by 3.4% this year as Portugal aims to cut its budget deficit by 4.5% in 2013, something that will mostly be achieved through tax increases.
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.