residential property market in portugal 2

8/6/2019 Residential Property Market in Portugal 2

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Residential Property Market in Portugal, Silver Coast Area

Nigel Salmon MD of Girasol Homes (www.girasolhomes.co.uk) recently spoke to hiscolleague Craig Anderson in the Silver Coast Region of Portugal regarding the marketplace

and current conditions locally.

Nigel: “What is the market like locally?”

Craig: “At the moment there is a lot of press with regards to the current climate in Portugal

which is fuelling some concerns about the financial and political stability of the country. With

the current Centre-Left government resigning and the press bandying around phrases like

“Financial Bailout”, “Austerity Measures” and “Recession” like they were confetti, it is no

wonder. On the back of this there have been some reductions in the asking prices of some

properties, and coupled with some reports that property prices are in “Free Fall”, seems tobe giving the impression that there is also a real instability in the residential property market”

Nigel: “But is this really the case?”

Craig: “Every market is unique and has unique opportunities, let me explain”

There are several factors that make this market different from markets which may be more

familiar to people such as the UK or Spanish Residential Property Markets.

1. Land classifications have been created with there being 4 main types. They are

Urban, Touristic, Rustic (or Agro-Florestal) and Eco-Reserve Land. This allows for

the control of where, as well as what type of properties can be built. For example

you can’t build an apartment block on Rustic land. Rustic land generally only allows

1 detached or 2 semi-detached properties to be built.

2. There are very strict guidelines when it comes to building in Portugal. These include

very rigid rules regarding the size of building in relation to the land that it is being

built on as well as the maximum height and so on. This is designed to prevent

overbuilding, or the construction of high-rise apartment buildings etc.

3. Proximity to the Ocean. There are restrictions on the various land types as to how

close to the Ocean you are allowed to build. Recent changes have meant that it is

no longer possible to build on certain types of land, such as Rustic land, if they are

within 800m of the coastline.

4. There is a minimum land requirement meaning you must have a certain amount of

land in order to be allowed to build on it. Again recent law changes saw the

minimum requirement for Rustic land changed from 2,000sqm to 40,000sqm which

greatly reduced the availability of building land over night.

5. Mortgages, for some time now it has been virtually impossible to borrow money from

a bank to buy a piece of land. Therefore virtually all the land is debt free in Portugal

and the owners, generally, are under no pressure to sell the land to clear debt.

Nigel : “So what does all this mean?”

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Craig: “If you take all the factors and apply them across the board, it means that the supply

of land is very limited. It means that any available land with a good sea view is at a premium

and will only sell at a premium price. As you move inland the price does drop a little but the

scarcity of Rustic land means that land prices are still fairly high. It also means that landowners are not desperate to sell their land and therefore you are unlikely to see

wholesale reductions in the price of land. It means that existing properties, particularly those

with a good sea view or some other unique feature, will hold their value because it is

generally no longer possible to build a comparable property given the new and current

building restrictions.”

Nigel: “So why therefore are we seeing some reductions in asking price?”

Craig: “There are reductions in the asking price of some properties, and whilst most property

owners seem to be more receptive to negotiating than before, it tends to be the developerswho are making large scale cuts in the asking prices. This is occurring for 2 possible

reasons.

1. The builder may have borrowed during the ‘good times’ at low interest rates to make

speculative builds and they may have designed their properties to cater specifically

to international property buying market. Now that ‘harder times’ are here, they are

being squeezed by higher costs, and interest rates at the same time when the

international property buying market has slumped because of exchange rates and

worldwide economic woes. Some builders are left with little choice but to slash the

price of their property in order to liquidate the asset, clear the debt and basically get out. We have already seen a number of builders shut up shop under current

economic pressure. We do have access to advertised and “un advertised”

discounted homes.

2. Not all builders however are in the same dire straits. Many are in much stronger

positions but possibly need to make just a single sale to ensure they are able to

weather the current economic storm. However because other builders are cutting

their prices, the stronger builders are being forced to follow suit in order to remain

competitive in the eyes of the few bargain hunters who are out there. It is also worth

noting that most of the price reductions are coming from the luxury market and tend

to be on properties that are priced in excess of €500,000. At present we are seeing only a few obvious price reductions on properties below this figure.”

Nigel: “So what impact is this having on the market?”

Craig: “Things have changed and the change has been very rapid. The new property

market is split between properties priced over €500,000 and those priced below this figure.

The higher priced properties are seeing a reduction in the asking price which has yet to filter

down to the properties below €500,000. The resale market tends to see prices remaining

fairly steady although vendors seem to be more receptive to negotiations. The plot and

build market is the one seeing the least amount of activity at the moment because of theincrease in VAT and the general rising cost of materials. 12 months ago you could have



bought some land and built a property for as much as 25% below what you would have paid

for a comparable, existing property. Unfortunately this is no longer the case as the price

differential has slowly been eroded away. At the moment, particularly with the current

reductions on Luxury Properties, it is now more sensible to buy an existing property and

enjoy it now, rather than build your own property for much the same price but have to wait

up to 2 years for the result.”

Nigel: “So when do you believe it is the best time to buy a property and why?”

Craig: “I believe now, Summer 2011, is the time to buy because the current prices will not

remain as they are and there are some exceptionally good bargains around. The next

election here in Portugal is set for the 5 th June. In the short term, it really doesn’t matter

which political party gets elected to office because they are all bound by the terms of the

“Bailout” to implement the same measures. Then the agreed financial rescue package

needs to be delivered and be in place by the 15 th June. Once these two events take place,

the dust will begin to settle. The world will see that there isn’t such a major problem in

Portugal and the confidence will begin to return and people will start investing in property

again. Once this starts to happen, the price reductions will quickly disappear as the laws of

economics kick in. We will see the demand for properties increase as the confidence

returns and the limited supply of properties will reduce as properties are sold to satisfy the

demand. Increasing demand and a reduction in supply will inevitably result in the prices

going up. Initially I don’t expect there to be a huge increase in prices, those that have been

reduced will revert to their pre-reduction prices and the rest will probably remain as they are,

there will just be less room to negotiate. However, as time goes on and confidence

continues to grow, we will see a shortage of available properties with the result that it will become a sellers’ market, and then we will see prices increasing.”

Nigel: “But won’t they just build more properties to satisfy the demand?”

Craig: “Possibly. However for at least the last 18 months the banks in Portugal have not

been lending money to builders to make speculative builds and there is no indication yet that

this situation will change in the near future. If the situation does change it will take at least

18 months for newly built properties to be ready, and due to the reduced number of available

builders, the number of new properties coming onto the market is unlikely to be large

enough to have a significant effect on property prices as a whole. It is more likely that thesenew properties will be priced in keeping with whatever the current value of the market is at

that time.”

Nigel: “Could I not just wait and buy a repossessed property from a builder that has gone out

of business?”

Craig: “Yes you could. However, repossessions do not operate the same way here as they

do in other markets such as the UK. Some things in Portugal move rather slowly and can be

rather complicated. Therefore, depending on the circumstances, a property that is

repossessed today could take as much as 2 years or more before it is put back on themarket by the repossessing body. During that time the building will have been unoccupied



and, depending on what stage the construction was at when it was repossessed, it may well

have had the interior exposed to the elements. Therefore there may be additional hidden

costs involved in getting the property back up to scratch and the price at which it is offered to

the market may not be any lower than the current market value. So it is therefore better to

buy it now, at a reduced price if possible, rather than wait for an undetermined period of time

to buy the property, with little reduction in price, that has now deteriorated and needs

additional work.

Therefore, whilst the Residential Property Market is being affected by current circumstances,

it is not an unstable market. I believe as soon as the current situations are resolved, the

market will very quickly revert to its natural point of equilibrium. I also believe we are

unlikely to see the widespread peaks and troughs in Residential Property prices, which have

been witnessed in the past in other markets such as the UK or Spain, as a result of bursting

property bubbles.”

We have access to a larger than normal amount of quality properties in all price ranges and

many great locations, if people are buying for all the right reasons and in the right areas they

will find a great house with us in Portugal.

Craig Anderson is in charge of the Silver Coast Operations for Girasol Homes Limited.

Girasol Homes+(351) 261 414 121 / Videophone: +(351) 300 303 547 / Mobile: +(351) 934 525 598 /

http://www.girasolhomes.co.uk

Girasol Homes operates in Spain, Portugal, Turkey, Cyprus and Florida and looks after dozens of property professionals and clients. Full AIPP members.




residential property market in portugal 2

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