Every year in December we reflect on the past year and provide an outlook for the property market in the year ahead, 2017. Looking back we can say it has been a busy year indeed. During the past 12 months trading conditions for Portugal real estate continued to improve both in transaction volume and price. It was also a record breaking year in which the total number of visitors to the Algarve reached a new all time high due to the continuous popularity of the destination as well as the influx of hundred of thousands newcomers from other holiday destinations in countries that are currently facing turmoil. As a result, 40.000 new jobs have been created in the tourism industry between January and September after 6 years of decline, leading to a substantial decrease in unemployment in the sector. We also experienced an extension of the holiday season beyond the traditional summer months as road traffic, hotels, terraces and restaurants during the months of May, June, September and October were quite busy. This was already the case in 2015, but less pronounced. In addition, the demand for rental accommodation for long term stays also increased at all price points. This group of renters consist of people who would like to buy Portugal property but rent first to find out if they like the area, successful applicants of the Non-Habitual Resident program (NHR) who need an address and official long term rental agreement and others who simply want to stay 2 to 6 months to escape the winter months back home. The Algarve has much to offer, so the longer you stay the more tempting it becomes to want to own your own place in the sun.
The increase in demand for Portugal real estate this year came predominantly from buyers from Scandinavia, France, Germany, Belgium, Italy and Switzerland and often in relation with the NHR program. The British have been active as always, however for them 2016 was a year of extremes due to the volatility in the GBP/Euro exchange rate. Before Brexit Sterling was strong which made it relatively easy for prospective buyers to complete their purchase while after Brexit Sterling weakened which in turn made it easier for British vendors to accept offers and return back to the U.K.
Programs like the Golden Visa and the NHR continue to be successful in attracting foreign buyers and we expect this to be no different in 2017. Especially the latter as more and more people from Northern Europe will learn about this program and the benefits. The NHR program is a scheme for individuals who have not been a resident in Portugal during the past 5 years. Once an individual has been granted the NHR status, he or she will be exempt from income tax (work, royalties, pension, interest and dividend) for a period of 10 years. This program is an attractive proposition for many foreigners who like to capitalize on a recovery in property prices while having a 10 year tax holiday. The Portugal real estate market benefits more from this type of buyer versus flippers, as they have a strong incentive to hold on to their property during this 10 year period. It is also contributing to more economic activity outside of the summer months to the benefit of local businesses.
In line with expectations the newly built properties that came to the market this year were quickly snapped up by eager buyers. The balance in supply and demand has changed in favor of vendors as the overhang of unsold properties has disappeared. However, there are still some banks who own real estate which they foreclosed on during the financial crisis, but these properties are either overpriced and/or simply not attractive to buyers. The truth is that when the crisis started they did not mark them down to realistic price levels fast enough as decision making at banks is notoriously slow which only resulted in more pressure to their balance sheet problems.
All in all the residential property market is in pretty good shape with strong demand from buyers and renters alike. On average the price of a property over the past 12 months has appreciated by 9%, which is at the top end of our 7 - 9% expectation a year ago. Current price levels are still approx. 30% below the previous high of September 2008.
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