A recent article in the Guardian about the appeal of property in Portugal spawned a host of spin off articles on property related websites that grabbed hold of anything positive about the nation’s market from the original piece, and pushed the appeal of the country’s real estate to the max.
However, despite the overall positive findings of the original Guardian article’s author Graham Norwood, we would like to argue that property in Portugal is not necessarily so popular with Britons at the moment – even those seeking to buy into a more stable market in Europe perhaps.
The appeal of the nation is of course great, but it is not as great as the appeal of France or the appeal of Spain for holiday home and investment property seeking Brits looking specifically at Europe. And of course, for those turned decidedly off by the horrendously hideous euro/sterling exchange rate at the moment, Portugal is definitely a no-no. In this report we look at reasons not to buy property in Portugal, and present them along with the positives about the market so that you can make a more informed choice.
According to the Guardian article and all those that have been spun off the back of the author’s words and research, the Portuguese property market has weathered the international property storm better than the likes of Spain or France. This is in part true – prices have not fallen as far in much of Portugal as they have fallen in the most popular and over sold regions of France and more especially, Spain. However, prices have fallen. What’s more, the Portuguese economy is on shaky ground at the moment with the contraction in the first quarter of 2009 greater than predicted by many, and recession not an alien term in Portugal anymore, and even the most positive predictions from real estate experts in Portugal are that its market will continue to see a decline until the end of 2010.
In the most popular parts of Portugal – such as on the Silver Coast and of course the Algarve – the property markets that were propped up by speculative purchasers, international buyers, those looking for a holiday home etc., have seen the greatest impact in terms of a decline both in interest, sales volumes and prices. This is in direct line with what has happened on the Spanish Costas for example. I.e., where a market is inflated by transient demand, so it will suffer when anything affects that demand.
Some might say that there is still more room for speculation in Portugal than in Spain or France, particularly in the Algarve region for example – after all Portugal’s a very strong bidding nation for the 2018 Ryder Cup with the Algarve home to the nation’s best golf courses. But the fact of the matter is, you are still buying with the euro in Portugal, and the euro is riding too high against the British pound for buyers to be interested.
Anyone who does want to buy in euros will be looking to markets like Spain where there are distress sales of repossessed homes, where they can buy properties that have been slashed so far in price that despite the strong euro they can see they are getting a bargain – or at least they are getting more for their money. The one thing this international property crash has taught international buyers is that no market goes up indefinitely. I.e., there are solid fundamentals that have to be in place for sustainable property price appreciation, and even these fundamentals can be undermined when a nation’s economy ends up in a state!
Adding to the negative aspects of the Portuguese property market is the fact that it can be quite hard to manage a purchase. For a start you need a tax card and number and a local address to get them. Yes, estate agents usually take care of that for you – but then you’re restricted to buying through an estate agent and their fees can be as much as 10%! On the positive side of things when it comes to Portuguese estate agents, they are regulated at least, and your vendor may take on all their costs – though you may then have to do then same when you eventually come to sell your property in Portugal.
As for those looking for a way in to a growing market or a market where there is at least strong rental demand, they may well appreciate that the cities in Portugal are perhaps a popular, long-term, more stable choice. The most accessible real estate in such locations are apartments – and yet apartments can are often ‘managed’ by the residents within them, and it can be nigh on impossible for a foreigner to have any way in to buy a vacant home. The restrictions are tough, the objections, hurdles and difficulties you can face can be more than off putting!
If you decide to buy into a new development to avoid such a situation, or if you’re thinking about buying a villa or a house as opposed to an apartment and it’s for your own use or for short-term lets to tenants, aside from falling demand that is evident in the tourism market at the moment, you need to face the fact that Portugal is not a cheap market to consider when you factor in the additional costs, fees and taxes payable when you purchase real estate.
I have already mentioned the estate agent’s fees – ask about your liability to them upfront and be prepared to haggle if you’re going to be responsible for paying them. You then need to factor in anything and everything from 2% of the purchase price for your solicitor and notary fees, 1% for the land registry fees, up to 1% just for getting utilities connected or changed into your name, and 1% for mortgage arrangement fees. Oh, and don’t actually count on getting a mortgage in Portugal. The local banks were always reluctant to lend to overseas buyers, now they are even more reluctant! You may well be better off securing a loan from your home nation. Depending on how and what you buy you can face up to 0.8 – 1.4% in stamp duty and up to about 8% in transfer tax – and then never forget the fees you will have to pay when you want to exit the market and sell your Portuguese property – and the capital gains taxes you may incur on any profit you make, oh and the IVA (local equivalent of VAT).
Buying in Portugal may well be best only for those who want to go and live full time in the nation, who are committed to the long-term and whose losses in terms of exchange rates, fees, taxes and commissions will be absorbed over the long time the property is their home. Otherwise, there are better nations for investment property or holiday-home purchase both in Europe and elsewhere if you want better value for money.