The Algarve residential market will gradually recover from the Covid-19 crisis with the region expected to remain as popular as ever. However, technology and client-centric products and services will be the rule rather than the exception in the post-Covid world, according to sector pundits who took part in a webinar titled ‘The Algarve Property Market – Overcoming C-19’, organised by the Algarve Resident in association with the British-Portuguese Chamber of Commerce.
How the current Covid-19 pandemic is affecting the Portuguese economy, the tourism sector and businesses has been thoroughly debated in recent weeks. What has been less discussed is its impact on the Algarve’s residential, resorts and second-home markets, begging the question, what factors will motivate buyers in this sector post-pandemic?
Miguel Palmeiro, Commercial Director of Vilamoura World, is reassuring when he states what has become a reliable mantra of truisms for many in Portugal for years: that the Algarve region has the best to offer when it comes to relocation – good weather, excellent infrastructure including a refurbished airport, state-of-the-art health facilities, fine food and wine, and wonderful beaches, all of which mean it scores top of the list when it comes to that well-worn cliché ‘location, location, location’.
The Algarve also has the second highest GDP in Portugal and the second highest property values per square metre after Lisbon.
The holiday region, he says, is a consolidated destination in terms of real estate, where you can find a wide range of investment opportunities, from apartments and homes in resorts to guaranteed income-generating investment properties.
“Buyers will discover that being in the south of Portugal, away from concentrated conurbations, will no longer be a competitive disadvantage in a post-Covid world, but rather an advantage as social distancing becomes a premium and the Algarve has one of the lowest population densities in Portugal. It also has the country’s largest foreign community, which brings a dynamic of its own in terms of the real estate sector with a balanced, quality stock and no over-supply,” says Miguel Palmeiro.
But if the Algarve has it all, UK buyers should not be blind to the potential threats arising from Brexit and should use the current lockdown period and the Brexit transition period to December wisely.
Gavin Scott, Senior Partner of financial advisers Blevins Franks, flags up a number of threats which need to be planned for in the transition period. Top of the list is the impact on sterling pensions.
Pensioners used to get €1.50 per £1 but are now very close to Euro parity, with relative net worth falling 35%. There could also be a 25% overseas transfer charge on pensions once the transition period ends, so he stresses that people have a short window of opportunity now to move.
Scott says there are also other tax incentives like the Portuguese government’s non-habitual resident (NHR) scheme, which is “unlikely to change”. He advises potential movers to use the furlough time to “make those plans now rather than later” and adds that, so far, the response from potential buyers has been encouraging.
On April 1, there was a change in Portugal’s pensions tax whereby pensions from overseas which had been subject to zero tax will now face a 10% tax from the UK. However, tax-free dividends from overseas, with no capital gains tax to pay, remain unchanged in Portugal on property sales in the UK. “Brexit will not affect any of these benefits since agreements were already in place before,” he says.
“Movers need to match their Euro liabilities, take adequate tax planning steps, think about when to capitalise on ISAs, offset UK allowances against tax so that these remain the same regardless of Covid-19 and Brexit, and focus on pensions and maximising the opportunities to come,” Scott advises.
Tiago Chaves, Senior Property Consultant at Fine & Country Algarve, said they had used the lockdown to maximise digital technology with online marketing, creating new ways of increasing exposure of their properties through videos, slideshows, virtual tours and improving property listings.
“An increase in home working will likely have an impact on the residential market, with higher demand for combined home-offices with good Wi-Fi a priority,” he says.
“We were very busy up until the Covid crisis, but enquiries tailed off slightly giving us more time to concentrate on existing clients. In the past few weeks, however, enquiries have been increasing again.”
Prices remain stable
Regarding prices and whether the Covid-19 crisis and ensuing recession were likely to drive prices down, Miguel Palmeiro says that, since the last crisis, prices have risen by 20% on average and are back at 2007 prices.
“I think we have to establish a differentiation on pricing depending on second-hand or new-build properties. Regarding second-hand, it depends on the need for individuals to sell. The demand is there and yet there is not an oversupply,” he says adding that the timeframe to sale may be longer. These will come into the market fast and sell at lower prices.
However, he says in the case of new build, there is a totally different market structure regarding developers.
“Today we don’t have an over-financed market and, at the same time, we don’t have an oversupply of stock. In our case in Vilamoura, which is still under construction, we have over 50% sold. We don’t have any reason to lower prices. We have to look at the market over time and calmly see how it will react,” he adds.
In Portugal, he says there was a 1.2% increase in January and 1.4% in February while in March there was an increase of 0.4%, meaning that for now there are no conditions to warrant cutting prices for new build.
Tiago Chaves agrees with the forecast and states there is still demand backed up by supply. “The interest is still there, and I don’t see prices dropping unless private individuals find the need to sell.
“Yes, we are seeing some vultures circling around looking for opportunities, but I don’t see such opportunities happening in the short term, if ever,” he said.
Miguel Palmeiro says that Vilamoura World has had to adapt very quickly, with Artificial Intelligence (AI) and digital technology coming into the business fast as a result of Covid-19, with online viewings, webinars and virtual launches, while construction has continued as normal.
“Our clients are the most important aspect for us, and we’ve been giving them updates and news about the new online tools that we have developed.”
Palmeiro does not think prices will drop dramatically, if at all, because there is no market oversurplus. “Real estate has a long-term cycle and we don’t make snap decisions over an event like Covid-19. We have to see how this evolves over time, but we have made a leap with technology which will make us more efficient with clients and partners.”
Bounce back in demand?
While it is difficult to predict what will happen post Covid-19, Fine & Country’s Tiago Chaves sees the recovery being more of a U-shape rather than a sharp V-shape with “clients gaining confidence gradually”.
The estate agent believes Portugal will be able to take advantage of all the good press and international awards it has won over the past few years, and more recently the international praise it has garnered for the way it has handled the crisis, particularly the latest accolade from Forbes magazine which trumpeted Portugal as the ‘Best place to live and retire post Covid-19’.
Moderator Andrew Coutts of the ILM Group, a sustainable property and resorts development consultant, says it is important to remember that the Algarve residential property market is now “very balanced in terms of supply and demand”, which is a positive post-financial crisis legacy as investors are careful not to overdevelop.
Tiago Chaves thinks that for those looking for a holiday property, there would not be significant changes in their requirements for a low-maintenance, easy lock-up-and-go property, with pool and beach proximity and amenities, as well as investment-return potential.
There may be, he says, a change in demand in the residential market with ‘relocators’ who will be more specific and selective in their requirements for good-quality homes with more space, high specification standards, including insulation and energy efficiency, and good internet connection. And these will not necessarily be looking for properties in resorts, but increasingly in the community.
Miguel Palmeiro says that the biggest shift for resorts will be for more human-centric developments where people will become the protagonists when buying property. There will be more remote working and meetings and, therefore, an adaptation to a hybridisation of home space, with properties serving multiple functions as home, office and holiday retreat.
“We will see more cost-effective, technology-driven construction, the industrialisation of the manufacture of concrete and other materials with prefabricated modules and units being put into place,” he says.
“We will also be using 3-D technology and, in terms of customer relationships, we will also see the importance of ‘gamification’ where screen-by-screen with the client we can decorate the entire home so that when they arrive, they will be able to immediately close the deal,” Miguel Palmeiro concludes.
By Chris Graeme