Should I think about buying Now?
One of the most recurring questions we get asked is – Is now the right time to buy in the Algarve?
In our humble opinion
The short answer is yes, property prices have been on the increase for the last 20 yrs and show no signs of stopping.
With so few Algarve properties for sale in the marketplace, prices are at a premium and will continue to be so. Throw into the equation the shortage of Algarve real estate in the most desirable areas and the time it takes to build new developments, there is no reason to think otherwise.
If you are seriously thinking about investing in an Algarve property then read on for a more detailed look at the current situation and the forecast for the following year.
The European view
According to most figures, real estate prices have been rising across the whole of Europe over the last couple of years. The Pandemic hit many businesses and caused economic disasters for most industries. However, it appears to have had the opposite effect on the property market, with rising property prices in many European locations.
The repeated lockdowns for months at a time and travel restrictions abroad have it seems driven many to rethink their lifestyles, property, investments and assets. The world pandemic has led to many people re-evaluating the way they live and indeed where they live in ways we would never have imagined before. Not only are locals looking to upgrade their homes but many investors planning a second residency to escape their home country should the need arise.
Strick Lockdowns have lead to more interest abroad
With some countries’ lockdown measures being so strict, it has led many individuals to search for an alternative residence in a suitable country that may offer more freedom should a similar situation arise. Let’s face it a long lockdown in the sunny Algarve is much more appealing than spending the same time in a dreary and colder location.
So what about Portugal and the Algarve in particular?
Going back to 2021, Portugal as a whole saw an overall price increase of 13.8% according to a recent article in The Portugal News.
In the first six months of 2022, the price of houses rose 17.2% in comparison to the same period in 2021. Buying a house in Portugal cost approximately 1,455 euros per square meter. This was on average across the whole of the country, at the beginning of 2022. However, property in the Algarve became the 2nd most expensive of the 25 sub-regions of the country behind Lisbon, at approximately 2,238 euros/m2.
So the big question is will house prices go down in the coming year in the Algarve?
Based on the current economic state this is not looking too likely with pressure being forced on the purchasing power of those living in Portugal. Inflation jumped up to 8.7% in June 2022 and the interest rates on mortgages are rising in relation to the steep rise in Euribor.
The rising cost of buying property in the Algarve
Buying property is also continuing to become more expensive in the Algarve. In the first six months of the year, the price of houses rose 17.5% compared to the same period last year. Buying a house in Portugal cost 1,454 euros per square metre, on average, at the beginning of this year. These sub-regions also presented the highest values in both categories of tax residence of the buyer.
• For Foreigners: The Algarve €2,588/m2 and Greater Lisbon €3,533/m2;
• For the Portuguese: The Algarve €2,115/m2 and Greater Lisbon €1,969/m2.
Which locations have seen the biggest price rise?
So where did house prices rise the most at the beginning of the year in comparison to the same period last year? It was in Beira and Serra da Estrela at 23.7%, closely followed by Alentejo Litoral at 22.1%, then the Algarve at 22.0%.
What about interest rates and mortgages?
As the interest rates on mortgages keep rising due to the increase in Euribor rates, the European Central Bank (ECB) estimates that property prices in the Eurozone countries as a whole may fall by up to 8% in the next few years.
After reaching all-time lows in 2021, “mortgage rates in the Eurozone have risen steadily since the beginning of 2022.
In the first 3 months of 2022 alone, interest rates on mortgages saw the highest half-year increase on record, and the wheels of the property market are very much adhered to mortgage rates.
According to some experts, mortgages will have an effect on both property prices and real estate investment, from a historical point of view an increase of one percentage point in mortgage rates has caused a 4-5% drop in property prices after two years, as well as a 7-8% drop in real estate investments.
However, changes in the property market brought on by the covid pandemic may help to counteract the effects of the rising interest rates and help explain part of the stabilising observed in the Eurozone real estate market.
When there’s no crystal ball to make a prediction as to when the real estate market will turn in, either way, it is best to rely on expert local advice as a guide.
To sum up the current line thought
Despite the rise in interest rates and the possible fall in property prices, most experts believe that the housing market is set to stabilise.
The current economic state is leading property buyers to ask the question if now is the right time to buy, or if it would be wiser to wait until next year.
Reports have found that when it comes to buying a property, most Algarve real estate agents believe that, despite the current state of the market, this is definitely a good time to buy. When analysing the historical correlation between Euribor and sales, the rise in mortgage rates does not have a real impact on the number of transactions.
Believing that 2022 will continue to be a good year to invest in property, as the measures applied by the ECB to contain inflation will be offset by increased activity from private and professional investors. Despite the fact that, as some reports point out, 2023 will be a year marked by a 15 per cent drop in sales, the real estate market should stabilise.
In the next six months, the economy could slow down, mainly as a result of the War in Ukraine and all the problems it has generated for the world economy, for example, the decision by the ECB to increase interest rates. Which is expected to continue to rise in the next few months.
From our point of view, the investors should assess whether a future increase in mortgages will have a slightly negative impact on their financial situation. Evaluating which of the two options they prefer in whether to buy at a higher price and lower interest or vice versa.