By Lisa Channing, Marketing Manager
Real estate is the world’s most significant store of wealth - more valuable than all global equities and debt securities combined, and almost 4 times global GDP levels. The value of all gold ever mined pales by comparison at $12.1 trillion, at just 4% the value of global property. The value of the world’s real estate reached $326.5 trillion in 2020, a 5% increase on 2019 levels and a record high. Growth was driven by the residential sector which is by far the largest real estate sector, accounting for 79% of all global real estate values. It saw its value increase by 8% over the year, to some $258.5 trillion.
At a regional level, significant residential wealth is concentrated in Europe and North America accounting for 43% of total global residential value, despite being home to just 17% of the global population.*
In 2020 and 2021, real estate has provided investors with an income opportunity as they search for returns in a low interest rate environment. Government stimuli in the wake of the pandemic has meant that there is more capital in the system and real estate is viewed as a safe store for it.
Here in the Algarve, we have seen demand for real estate continue to grow – particularly at the higher end of the market in which we have specialised – around the Euros 1million and above, where we have seen valuations rise – particularly in highly sought-after locations. New price heights have been recorded with 6 of our sales in 2021 achieving in excess of Euros 10 million. Our largest sale this year achieved Euros 18.5 million – a record high for us at QP Savills and possibly the country. Testament to the exceptional quality of properties which are now being created in the Quinta do Lago area and calibre of clients we have the privilege of working with.
Our market research provides some valuable insights and enables us to see who is buying, what their primary motivations are and why they are choosing Portugal and more specifically the Algarve. We are delighted to share these insights with you. In 2021, demand for property is still very much British-buyer led. Over 60% of our buyers come from the UK, followed by Irish nationals (15%) and then the French and the Portuguese. The area is attracting a slightly more international group of buyers and we are seeing more buyers from Belgium, Germany, Holland as well as the USA.
Our research indicates that two-thirds of our buyers are choosing a holiday home with income potential. 70% of these buyers are couples and 30% are families with the average age, between 45 years and 65 years. The post pandemic work-place provides many of us with the opportunity to work from home and this is contributing to increased interest in bigger and better homes – somewhere buyers can spend more time in comfortably. 20% of our buyers are buying to make Portugal their main home. Secondly, return on investment is key. In a low interest rate climate, rental yields offer a very favourable alternative to other investment vehicles and many buyers are focussed on returns on investment in the price range of up to Euro 1m. Above that yield seems less of a motivation for buyers.
Many of our buyers are very familiar with the Algarve and have been travelling here for years. They have familiarised themselves with what is a highly popular destination for so many reasons and have decided to take the step into purchasing a home. A very important driving factor contributing to demand in the Algarve is personal security. The Algarve was recently nominated amongst the top 5 safest places to live in the world and the low crime levels are an important factor to purchasers. Investment security is the second most important driver and buyers perceive Portugal as a secure place to invest in a first or second home – houses are well constructed, infrastructure is good and the strength of the property market gives extra confidence to all buyers.
For those buyers who are unfamiliar with the Algarve, there is undoubtedly, initially some surprise regarding property prices, however, this inevitably recedes as those same buyers take stock of the prolific market activity and often missed opportunities whilst they watch from the side-lines before they embark on their own purchase.
The NHR and Golden Visa schemes continue to be a popular draw for our buyers. NHR buyers make up 20% of total enquiries and GV buyers account for 25% of all enquiries.
A contributing factor to the higher prices is pressure on the supply chain. Demand for property has continued to outstrip supply of homes coming to the market – the last time we saw this happening was 14 years ago. Historically, there were more transactions arising from owners selling to buy again. Now we are seeing newcomers to the market and they have big budgets often having sold big businesses, and are providing another important driver across the market as a whole.
The pace of the market requires buyers to react quickly otherwise opportunities are taken by others. House sales are coming about for the usual factors of upsizing and downsizing and changes in lifestyle but other factors are at play. Some stock is coming to the market due to the pressures of Covid and Brexit is also a contributor. Higher prices are offering vendors attractive returns on their initial investment and they are taking the opportunity to realise them.
Popular amongst buyers are smart homes. Domotic systems have historically been complicated and unreliable. Now the best new houses need to feature the most exciting new technology. Buyers are discerning and are seeking a highly sophisticated finished product. In addition, older properties continue to be in great demand offering potential for development as their owners decide to realise gains – offering buyers inherent opportunities.
So what’s next for the Algarve property market? We are seeing a real lack of stock particularly in the provision of apartments generally. There is strong demand for good-sized 2,3 and 4 bedroom apartments. The Keys next to Quinta Shopping has recently been purchased. We await with expectation to see how that develops. There are other building projects that are being muted amongst the developers and a number of investment funds are seeking to build and invest here. We are keeping a close eye on this part of the market and developers should not delay in bringing new stock onto the market.
Visitor levels to the Algarve are still running at approximately half that of historical levels – this would imply that there is still significant potential demand for property across the region. Figures from our partners at Savills forecast values across Prime Central London to increase by an average of 2.0% during 2021 before a more significant recovery next year, with forecast growth of 8.0%.** The implications of an increase in London prices has historically suggested a positive impact on our market here in the Algarve and will provide positive momentum as we look towards the end of the year and ahead to 2022.
*Source: Savills Research
**Source: Savills Research | Note: These forecasts apply to average house prices in the second-hand market. New build values may not move at the same rate.