Investment property – Algarve, Portugal
The Portuguese property market seems to be holding strong, and in some cases remains a pillar of economic strength during the Eurozone’s turbulent financial storm. Participate in the Passport to Portugal scheme and you can include citizenship and an EU passport as part of your property investment. Kevin Taylor investigates
As lay property investors, we are often bombarded with so much information regarding investing in property, and testing the waters seems a lot more like taking a leap off a waterfall, the result being the residual washing-machine bottom – disorientation and not knowing which way is up. Local, foreign, off-plan, coastal, sectional title, country or urban development all pop into the equation and if you are not one of those lucky property investors who has an esteemed portfolio manager, or have a personal knack for the property market and where to invest your money, this can be quite a daunting task. However, before you give up and retire your hard-earned cash into a low-yield money market account because it is ‘the safe thing to do,’ it could be a great time to consider off-shore property investment.
It goes without saying – Europe is in trouble. A series of excessive government debt, easy credit conditions and real estate bubbles across the board have paved the way for the near collapse of the Eurozone altogether. There was a time in 2011 where forecasters believed the euro would not last another year, and that Greece, Ireland and Portugal were going to default on their overburdened debt responsibilities regardless of assistance from the IMF and other financial recovery bodies. Surprisingly, neither has happened, and the euro has in fact strengthened against its major trading partners since the crisis began.
The property bubble did burst, leaving clumps of proverbial bubblegum scattered for as far as the eye could see. A time-old economic principle states, ‘that which goes up must come down’ but the same holds true for that which goes down – it must come up. Amongst all of the price corrections as a result of the bubble, the property market in Europe, especially in tourist-rich areas, still sits at an unrealistic low but, according to analysts, and natural laws of demand and supply, it will swing around.
With talk of default, downgrades and diminishing yields, Portugal is a nation that sits on the fence. It is no secret they are struggling to remain financially afloat. Standard & Poor’s has downgraded its credit rating to junk – making Portugal’s task of meeting future debt payments all the more difficult – setting them up for either default on debt or another bailout. However, its property market – especially in the tourist rich areas of the Algarve and the rest of the beach-clad southern coast, has not taken the fundamental flop speculators thought could have happened. In fact, in the time since Portugal received a 78 billion IMF bailout, the Royal Institute of Chartered Surveyors has identified Portugal’s property market as one of the Eurozone’s first markets to show tentative signs of getting back on its feet.
Boosted by low interest rates, government stimulus, and little to no restrictions on property ownership, record tourism to Portugal has seen an increase in wealthy clients looking to purchase higher-end property over the bargain hunt stockpile. This has aided development of exclusive residential areas, often going hand-in hand with the nation’s golfing rich developments. With more than one million rounds of golf played on Algarve courses in 2011, golf development and residential estates are being earmarked and erected one after the other. Urban properties in Portugal, including the Algarve, sell for an average of 1 300 to 2 000 per square metre, which is no doubt down from the region’s peak of about 3 000 per square metre five years ago. Couple this with the country’s low cost of living, temperate climate, young population and one of the lowest crime rates in the Eurozone, and you have a market worth looking at investing in – especially before the upswing occurs. Rental yields of up to 10 percent per annum in regions such as the Algarve are also common as are some reported cases of a 10 percent capital appreciation of property year on year.
In market conditions such as these it is no surprise various companies plug into such untapped investment gold mines and UK-based Sable Group is no exception. With offices in South Africa, and through the use of specialised off-shore property investment schemes and assistance plans, they are now providing a portal for South African investors to gain European property, citizenship, and the passport to boot. Although not entirely a new concept – property in Cyprus is another example of this – the idea of investing in a European country to gain citizenship is definitely something South Africans are proving interested in, as it is guaranteed instant access into Europe for investors and their descendants. The Sable Group go as far as to claim that for an investment as low as R1 million a South African has access to foreign property, a foreign income stream if they decide to rent the property, residency after only half a year and citizenship after only five.
Sable Group’s Gary Kockott explains: “The EU passport option has become attractive now that the door into the UK, traditionally a favoured South African destination, is largely closed as a result of recent regulation changes. The ‘highly-skilled visa’ which was a route to citizenship has been discontinued and now South Africans can get into the UK only via ancestry, partners or sponsored work permits. With the latter you have to prove that there is no one in the UK who can do the job.”
Programmes such as the Passport to Portugal are a testament to market conditions. Research identifying markets that are hungry for investment attract such avenues to entice foreign investment into a country. Inflation in Portugal has been stable over the past five years, sitting at around five percent per annum, and with interest rates as low as they are currently, across the board, it is a good time to invest in Portuguese property. It is a tricky scenario, because although the property markets in regions such as the Algarve carry low risk – the risk comes in the form of investing in a country that a year ago was on the verge of bankruptcy, and this pseudo-economic risk is such that investors are left to decide if it is worth taking on.