Portuguese Property Market / Investments

Two reasons the Algarve is such a bad investment area for property are;
a) The Algarve has “enjoyed” a property price boom like many other areas of Europe while the rest of Portugal has not. Therefore properties in other Portuguese areas are not as inflated as villas on the Algarve.
b) Property prices in the Algarve are typically €4,000 per sq. m without land to speak of, €5,500 per sq. m if you get decent grounds with it (important to stop something being built next to and overlooking you. In the commercial and political capital Lisbon, property without land is around €3,000 per sq. m. This inverted correlation is therefore unsustainable based on Portugal’s GDP.

Despite this most real estate agents continue to promise sensational returns of property investments in the Algarve. But when you look at what some of the more respectable estate agent names are saying, while they are hardly unlikely to paint a picture of doom and gloom, what they say is hardly inspiring! UK realtors with offices in Portugal Winkworth told the British "Independent" newspaper in November 2005 regarding the Algarve that "There are areas where you can still get in at a good price and where you definitely won't lose money". Which seems to mean exactly what I fear, there are many areas of the Algarve which will see investors making a loss. Part of the problem for serious investors is that offshore company owned villas have recently been legislated against by the Portuguese with punitive taxes for so called “blacklisted” offshore locations. This means finding a safe offshore haven to own and control your investment is increasingly fraught with risk in that if your offshore location gets added to the blacklist, the taxes will likely force you into transferring title to the property in your own name. This in itself then causes extra tax burden as such a transfer from one entity to another requires the property to be revalued at the current market rate for tax (including capital gains tax) purposes. Although Portugal still has one of the most favorable taxation systems in the EU (for example it does not have a wealth tax, nor is there inheritance tax for immediate family), making money from real estate investments using loopholes is all but gone.

Of course real estate investment also needs to take into account any rental returns you may make, but the law in Portugal has tightened over this aspect too thanks to a general necessary increase in taxation diligence (see my cost of living page). Whereas it used to be possible to make an unlawful income from renting out Portuguese villas to holidaymakers, this is being clamped down on by Portugal which has double-taxation treaties with other EU nations now. Added to all of this a seeming downturn in tourist numbers to the Algarve as a backlash to the Madeline McCann case, revelations that the Algarve is a centre for pedophiles and increases in other forms of crime (see my crimes page), then the holiday / vacation rental potential and with it the disproportionately high prices of properties in the Algarve seem set to tumble on top of this.