The Algarve is home to many good things: beaches, climate, gastronomy to make anyone who passes through or lives to gain a few pounds, welcoming and polite people, low crime, clean streets, wonderful natural landscapes, moderate cost of living and a varied high quality tourist offer.
However, there is something that we are also very good at that I don't see being mentioned so often in the media: having expensive houses.
However, this is a fact that not even the most distracted goes unnoticed. Be it the landlord who sees his neighbors selling their homes at ever higher prices, the students and young people who see the price of rents going up and whoever settles here for the first time, who – in addition to the smiling prospect of living in a great region – see your property as an investment.
So let's go to some facts. According to data from the idealistic real estate portal, the Algarve is the second most expensive region in the country to buy a house, with a price per m2 of €2.064, just behind the Lisbon region (€2.874/m2) and ahead of the North region ( €1.704/m2).
On the other hand, despite its small size, when it comes to housing prices, the Algarve has great disparities. The most expensive municipality to buy a house is Lagos (2.581 €/m2), followed by Loulé (2.534 euros/m2).
On the opposite side, the most accessible municipalities are São Brás de Alportel (€1.230/m2), Olhão (€1.464/m2) and Silves (€1.621/m2).
What factors can help to understand the rise in prices in the real estate sector that started in 2013? There are many and different natures. To know:
– Significant imbalance between supply and demand for housing;
– Interest rates in the Eurozone at historic lows;
– Widespread economic recovery in developed and emerging countries;
– Great dynamism of the Portuguese tourism sector, especially vis-à-vis traditional competing markets – translated into several relevant international distinctions;
– Greater attractiveness of Portugal as an international destination to live;
– Recovery of purchasing power and employment levels by Portuguese families;
– Lastly and without ever forgetting, the success of the “Golden Visa” and “Non Habitual Resident” programs created by the government in 2008 and 2009.
Is this growth sustainable? Is this a good time to buy a house or invest in real estate?
Unfortunately, and unlike the Lisbon and North regions, it is difficult to find detailed and up-to-date data for the Algarve.
Thus, the image that we manage to have on the supply side – construction of new housing, new building or rehabilitation permits and variations in the stock of mortgage loans, is necessarily cloudier than what is possible to obtain for these other regions of the country. .
Even so, looking at what is available, there is a great recovery of these metrics at the national level, with a special acceleration in the last two years.
It should be noted that the real estate market is particularly curious as demand is more volatile and quick to appear (or disappear), with supply necessarily taking longer as new construction or rehabilitation projects tend to spread over some years old.
The nature of the real estate sector often means that, after successive years of great demand (such as the current ones), there are years of significant investments that are only operational when demand begins to contract or has even disappeared (see the 2008 period -2012).
So the fundamental question remains: is a housing bubble imminent?
Physics teaches that “everything that goes up must come down”, which immediately advises some prudence. However, this maxim does not explain or allow us to reach conclusions about the real estate market.
This is not to say that our real estate market will never slow down (which is simply not true); however, the explanations and indicators that we have to watch out for are sentimental and economic, not the law of gravity.
In my view, the dynamism of recent years still falls short of an exuberant speculation, in which real estate is bought using mortgages that cannot be paid under normal circumstances, in the hope that the price of the guarantee (ie, the house) will continue to value.
Instead, recent numbers point to great dynamism and momentum regional and national real estate market.
We can argue that the cost-quality value proposition is no longer as attractive as it was three or four years ago, but the drivers on the demand side they continue to be quite healthy and there is still an imbalance between supply in the face of growing demand.
We have not (yet) started to see excess debt and some signs of speculation, like the one before the great financial crisis, but we have already had some warnings from Moody's regarding the sustainability of market growth – especially in Lisbon.
Still, for those with a longer investment time horizon, I believe it would be wise to wait for better opportunities to buy at more attractive prices as the market is cyclical.
In this sense, many of the answers we are looking for can be found on the world stock exchanges, which tend to anticipate economic slowdowns at a global level and help to define the sometimes optimistic, sometimes pessimistic sentiment that affects many of the large investment and consumption decisions of families .
Who is João Martins?
João Martins has a degree in Business Management and is currently attending a Masters in Corporate Finance, both at the Faculty of Economics of the University of Algarve.
He is a trainee member of the Ordem dos Economistas and is passionate and enthusiastic about financial markets.
He is currently a financial consultant at Blacktower Financial Management, a company based in Quinta do Lago.
Algarvian for several generations, he considers himself lucky to have lived, studied and worked in the Algarve.
He emphasizes the fact that having a twin brother is one of his greatest wealth and privileges.
Note: article published under the protocol between the Sul Informação and the Algarve Delegation of the Order of Economists
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