Market Factors Too Compelling To Ignore—Portugal’s Time Is Now
The euro is down to about US$1.13 (that’s the bank rate I got sending U.S. dollars to France this week).
In Portugal (where they also use euros), the property market is still way down in the dumps, just beginning to show signs of recovery from its real estate crisis of the last seven years.
Those two factors—a weak euro and a down-and-out property market—mean that ocean-side condos along Portugal’s coast can be a screaming bargain.
With US$200,000, you could buy a two-bedroom apartment of 900 to 1,000 square feet in Portugal’s Algarve region, within walking distance of the beach and close to a golf course. Don’t want to spend that much? No problem. With US$100,000, you could buy a comfortable one-bedroom place, also near the beach.
Europe is on sale thanks to the 25% drop in the value of the euro against the U.S. dollar since July 2014. With property prices still trying to recover in many parts of Europe, particularly in Portugal, the time to buy is now.
The euro could continue to fall and is generally expected to reach parity with the U.S. dollar. That could amount to another 10% boost in buying power for dollar holders. Should you sit back and wait for your dollars to grow even stronger? I don’t think so, for two reasons.
First, I think we’re at the bottom in Portugal. The time to be shopping is right now. Property prices are beginning to tick up in certain areas. Wait for the U.S. dollar to go up further, and you could lose more than that currency gain to rising property prices.
Second, I never recommend trying to time currency movements when planning a real estate purchase. Currencies can move fast and against you. Property values usually move more slowly.
When you identify a market of interest, you want to position yourself in that market so you can be ready to take action when a property that fits your needs presents itself… regardless (well, within parameters) of where exchange rates stand at that moment.
The Algarve is such a market of interest right now.
Whether you’re looking for a vacation home or thinking about a permanent move overseas, in retirement or earlier on, with a business or a family, this country has an awful lot to offer, especially along its southern coast. And the important point to keep front and center in your thinking is that prices in this charming, sunny region may never again in our lifetimes be as attractive in U.S. dollar terms as they are right now.
If you’re in the market for a vacation home on the Continent, a second home in the sun that you could rent out when you’re not using it, the Algarve has an important advantage over the Spanish costas (another region that you might also be considering in this context). In Portugal, the tax on property rental income for nonresidents is 25% of net income. In Spain, it’s 24% of gross income. That’s a big difference.
In addition, transaction costs for buying property in Portugal are less than in Spain. Portugal imposes a transfer tax that is tiered based on the value of the property. Buy a property for less than 92,407 euros, and you pay no transfer tax. From that price point, the Portuguese impose transfer tax at a rate of 2% of the value over the 92,407-euro base up to 8% for values between 287,213 and 574,323 euros. After 574,323 euros, the tax reverts to a flat 6% of the total price.
Bottom line, the most transfer tax you’ll pay in Portugal is 6%, but you’ll pay much less if you’re buying something small. The truth is, in today’s market, it’d be hard to spend more than a half-million euros here unless you’re really looking to go all in.
In Spain, the transfer tax starts at a flat 7% and can go up to 10% in some of the autonomous areas.
Portugal also offers the advantage of an active mortgage market for nonresidents. You can borrow up to 80% of the purchase price if you qualify. Note that banks cap mortgage terms at 75 or 80 years of age, depending on the bank.
One final advantage of buying property in the Algarve is the large English-speaking infrastructure thanks to centuries of connections between Portugal and Britain. You’ll have no trouble finding English-speaking real estate agents, bankers, attorneys, and other service providers.
We’ll have many on hand when we convene in the Algarve in July for our Live and Invest in Portugal Conference.
I’ll be there hosting the event and also shopping on my own account.
Four months ago I closed on my first apartment in this country, in the charming Old World harbor town of Lagos. I’ve spent the four months since working with local contacts to prepare and list the place for rental. Within two days of making the listing public, my rental manager had a tenant for Semana Santa. She wrote this morning to say she has more inquiries for summer.
Now that I’ve got the infrastructure in place, I’m ready to add a second rental property to my Portugal portfolio. The factors at work in this market continue too appealing to ignore.
Lief Simon
