Savills World Research Portugal Spotlight Prime Algarve Residential Market 2016 ON THE RISE Buyers have returned to the region as the demand for prime property deepens savills.com/research Notes about the publication This document was published in March 2016. The data used in the charts and tables is the latest available at the time of going to press. Sources are included for all the charts. 2016 Spotlight Prime Algarve Residential Market The Prime Algarve attracts lifestyle buyers seeking quality properties in a safe and secure environment EXECUTIVE summarY he Prime Algarve is The privately owned and managed part of a network of Algarve resorts of Quinta do internationally invested Lago and Vale do Lobo appeal to destinations that are additional home buyers, as they The Portuguese economy is seeing behaving quite unlike offer high-quality properties and some recovery, recording growth of 1.5% theT nations in which they are on-site amenities in a safe and located. While Portugal’s national secure environment. Buyers are in 2015 and forecast to grow by 1.6% housing market is seeing tentative attracted to the region’s lifestyle in 2016. See page 4 improvement, the Prime Algarve and an investment that can both has outperformed in recent years. be enjoyed or rented out for part This is in line with the recovery of the year. in the countries from which most of the Algarve source buyers are Tourism is the underlying derived, most notably the UK. fundamental for a second home Portugal offers incentives to those destination. The Algarve is one making the country their home. The The renewed rise of the Prime of Europe’s most popular tourist Algarve comes as many wealthy regions. Globally, international tourist ‘Non Habitual Resident’ tax regime is individuals find themselves fully arrivals grew by 4.4% in 2015 to supporting demand in the Algarve. invested in ‘first-tier city’ property. reach a total of 1.2 billion. Europe See page 6 In the years following the global led the world with growth of 5%, financial crisis, cross-border wealth while Portugal saw growth of 8%. An and other investment focused on improving tourist sector bodes well the prime core of established world for the Prime Algarve, bringing more cities, seeking safe havens in times prospective buyers, and renters, to of economic uncertainty. In the most the region. Prices for the very best properties in the heavily invested cities like Hong Prime Algarve in 2015 exceeded Kong, London and Singapore, prime Characterised by low levels of prices have doubled in a decade. supply and a product tailored to 2007 levels. See page 8 The prime markets of these cities the luxury second home market, are fully taxed and, with prices at a the Prime Algarve is positioned to high plateau, buyers are looking at benefit from deepening demand second-tier cities and leisure retreats from established source markets n for capital growth prospects. in the years to come. The region has long been popular with those from the UK, who account for 63% of buyers, but the French and other Europeans are on the rise, improving market diversity. See page 9 New development, rebuilding and resort investment is modernising the property on offer and aligning stock to current occupier demands. See page 10 The Algarve is one of Europe's most popular tourist destinations savills.com/research 03 Spotlight | Prime Algarve Residential Market THE ALGARVE FIGURE 1 Algarve fact file AT A GLANCE The Algarve is one of Europe’s most popular tourist Tourism regions, welcoming 3.7 million overnight tourists a The southernmost region of year. Demand exists for quality summer rentals. mainland Portugal, the Algarve spans an area of 5,000 square The ‘Non Habitual Resident’ scheme offers tax Tax kilometres and is home to a advantages for those who are eligible in relocating advantages permanent population of 450,000. to Portugal. One of Europe’s most popular tourist destinations, the Algarve’s population more than doubles in Appealing The Algarve enjoys 3,000 hours of sunshine a year, the peak summer season. climate with average summer highs on the coast of 32°C. The region is home to some of Europe’s top private resorts and Leisure The region offers 25 golf courses, beaches and estates. The area known as ‘The amenities two nature reserves, biking and sailing. Golden Triangle’, including Quinta do Lago and Vale do Lobo, attracts The Ria Formosa is a national park extending 60km Europeans and other buyers seeking National along the Algarve coast. It is an important stop over safe, secure and private second Park homes in a sunny climate. point for birds migrating to Africa. Central to the appeal of the Algarve Source: Savills World Research is its excellent connectivity to the rest of Europe. Faro airport serves the Algarve and annual passenger Frequent services coupled with a large fishing industry. The numbers exceeded six million for the a flight time of under three hours Algarve is itself known for its first time in 2014 (Fig 2), an increase (and a short transfer to the resorts) agricultural produce, including of 34% on the previous decade. make the Algarve a viable weekend figs, almonds, oranges, seafood retreat. Faro airport is undergoing and wines. It is the world’s largest The airport provides direct links to 80 a €32 million expansion and cork producer. destinations across Europe, of which remodelling programme that will 23 are to UK airports. result in a 25% increase in peak Portugal’s economy was hit passenger flow capacity. hard in the global economic downturn. Austerity measures, National economy imposed as part of the country’s “Portugal offers certain Portugal has a modern, service €78bn 2011 bailout by the EU based economy, of which tourism and IMF, coupled with improvement competitive advantages that is an important component but in the macro economic context, are helping fuel its recovery” it is diversified by being a major have paved the way to renewed agricultural producer, also having economic growth. INSTITUTIONAL INVESTMENT Lisbon has attracted significant foreign investment into its Lisbon’s prime residential real estate looks good value when commercial real estate sectors, underpinned by recovering compared to the competition, at roughly half the price of that occupier demand and attractive yields (prime office yields in Madrid, and less than a tenth of London prime prices. An range from 5% to 7%). German funds are active and overhaul of Portugal’s leasing laws have made residential competing for opportunities with funds from Singapore, investment for long term income a more appealing proposition. China, Malaysia, Brazil, the US. This has also attracted the attention of institutional investors. US developer Eastbanc is redeveloping buildings into prime This pattern of purchasing in the commercial markets is apartments in Lisbon’s Principe Real, a prime district within an indicator of where potential new demand in residential reach of key shopping districts. markets could come from if the product and marketing is sophisticated enough to appeal to the same buyers. Of The fact that Portugal is once again on international investment particular interest is Brazilian involvement in real estate lists bodes well for the Algarve, in the hospitality and resort which has been sparse at a global level to date, but has seen development sectors. Testament to this was the purchase of some flow into the Portuguese capital. Vilamoura by Lone Star, a global private equity fund, in 2015. 04 2016 A new left-wing government FIGURE 2 coalition, united in their anti-austerity Faro airport passengers sentiment, was formed in November 2015 following October elections. 6,500,000 The national economy grew by 1.5% in 2015, and is forecast to 6,000,000 grow by a further 1.6% in 2016, just below the Eurozone average of 1.9%. Unemployment stands at 5,500,000 12.1%, down from a high of 17.9% in January 2013. 5,000,000 Portugal offers certain competitive advantages that are helping to fuel its recovery. The World Economic 4,500,000 Forum ranked Portugal 36th (of 144 12 month passenger total (as at June 2015) countries) in its 2015-16 Global Competitiveness Report, scoring 4,000,000 highly for quality of infrastructure. 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 The country ranked 23rd (of Source: Statistics Portugal 189 countries) globally in the World Bank’s ‘Doing Business’ rankings, in which Portugal scored FIGURE 3 particularly high for ease of trading National residential markets return to growth across borders. 6% Tourism is performing well. The number of overnight guests grew 4% by 8% to 17.4 million in 2015. The Algarve accounted for 3.7 million 2% of these that year, making it the 0% second largest tourist destination in the country after Lisbon. Services -2% related to the tourist industry, -4% such as accommodation and food Annual price growth services account for 17% of jobs in -6% the Algarve, compared to 6% at the -8% national level. -10% Mainstream markets Portugal’s mainstream residential markets were hard hit in the Q1 2010 Q3 2010 Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015 economic downturn (in contrast to the prime markets of the Algarve, Source: Statistics Portugal p8) but economic stability is now bringing improvement. Portugal's tourist industry is performing well At the national level, prices grew by 3.4% in the year to Q3 2015, and now stand 9.1% above their lowest level of 2013. Positive annual growth has now been recorded every quarter since Q4 2013 (Fig 3).