Monday, 10 March 2008

Algarve - Thoughts on property prices vis a vis the Spanish Market

It is certainly possible that the Spanish property market turbulence
will hit the Algarve.

The question is how!

a) Will punters looking to buy on the Iberian Peninsula prefer to buy
in Portugal, as the same uncertainty on illegal construction currently
dominating the Spanish market, does not apply? If so it may have a
small upwards effect on Algarve Property Prices.


b) Will the surplus property portfolio in Spain result in a
substantial discounting in prices there. This could then result in a
rush to buy in Spain and decrease interest in the Algarve/Portugal
with a resultant small downwards effect on Algarve Property Prices.

It also necessary to factor in two other factors:

c) The current US recession and downwards trends in major world
economies. Credit lenders are going to tighten credit substantially in
my opinion, thus reducing the number of buyers around. This should
have a further downwards effect on world and Algarve Property Prices.

d) The Algarve itself - The Algarve is a strange economic animal where
often normal economic rules do not apply. A lot of money is invested
here but never gets spent here and just disappears...with the
resultant low wages, pressure on small business etc.

Secondly, developers here seem to have deep pockets and are prepared
historically and at present to sit on empty new builds for years
rather than sell at reduced price. The same is true of the
"second-hand" market. Local Portuguese and long time expats appear to
be prepared to sit on empty propertys for years rather than sell at
reduced price.

Overall, I think the next 2 - 3 years will see downwards pressures on
property prices particularly at the lower end of the market.

Prices will only see substantial increases if the World Economy turns round
quickly or if there is a major exodus of expats from Spain to

Finally, don't forget that it is not only the Spanish Expat market
that has an impact on the Algarve Property Market.

The Croatian, Bulgarian, French, Greek Islands, Cyprus, Canaries, Cape
Verde and Florida Markets also all have an influence.

In the long/medium term, Algarve property prices should recover and
maintain their value because of the Algarve's ease of access to key
markets viz U.K., Ireland, Germany, and the Benelux. However, also
bear in mind that property values here may never accurately reflect
final resale price because one may be required to drop a price 10%-15%
for a quick sale.