Lief Simon On Why This Is The Top Property Investment Market In Europe
We at Live and Invest Overseas believe that right now is perhaps the best time in our lifetimes to invest in a pied-a-terre on the Continent.
Specifically, we have identified Portugal as offering the best property values in the Old World today.
We’ve also named Portugal the world’s #1 retirement and lifestyle haven. We don’t make claims like these lightly.
So I asked Live and Invest Overseas’ resident global-property expert Lief Simon if he’d sit down with me for a few minutes to discuss the current opportunities on offer in Portugal.
Here’s what Lief had to say…
Q: What is it about Portugal that got your attention initially?
The property prices. When I realized that you could buy an ocean-view condo in some areas on this country’s coast for as little as 100,000 euros, I got on a plane.
I was so impressed by what I found during that initial scouting trip that I made an offer on a two-bedroom apartment in the Old World harbor city of Lagos before leaving the country. I closed on the property a few months later. The apartment has an ocean view, and the location is ideal, a short walk to plazas, restaurants, and the town beach.
Prices have gone up in the year since I made that purchase, but you can still find excellent investment opportunities. You’re buying for both appreciation and rental return. I looked at a couple of dozen condos when shopping for my own purchase; every one of them could achieve double-digit net yields (10% to 12%).
Another important aspect of the Algarve property market that got my attention is the government’s position on development. Building restrictions mean nothing new can be built within 500 meters of the coast, and construction is heavily regulated within 2 kms of the coast. A friend owns a 40-year-old house in the 500-meter zone that he wants to renovate and expand, but he hasn’t been able to obtain the required permits.
This means that what’s been built near the water is all that will be built near the water. Limited inventory and no option for additional inventory in the face of growing demand will translate into appreciating values.
Q: So you think this is a time to be buying?
For sure. As I mentioned, I bought about a year ago, and the market has moved since then, but we are still smack-dab in the buy-zone.
Prices remain well below their pre-2008 highs in most areas. Key and active markets are seeing growth, but you can still find excellent opportunities for both lifestyle and investment… particularly investment, as tourism numbers are at record levels. A rental in a good location along Portugal’s coast is one of the soundest property investments you could make anywhere in the world right now.
Avoid the cookie-cutter resort properties… anyplace where you’re buying one of hundreds of the same type of apartment. These commodity properties were the first hit, the hardest hit, and the last to recover in the wake of the 2008 crisis both in Portugal and Spain.
Q: Are there restrictions on foreigners owning property in Portugal?
Q: What about mortgages? Can a foreigner get a bank loan to buy in Portugal?
Yes, local banks lend to foreigners. Of course, you have to meet the financial requirements. Also, the terms won’t be what Americans are used to. You may be able to get a loan for up to 70% loan-to-value but no more. Interest rates likely will be variable and definitely won’t be fixed for 30 years, as they can be in the United States.
You’ll be required to get a local life insurance policy naming the bank as the beneficiary. Unfortunately, depending on your age, this can limit the term of the loan you’ll qualify for, as most life insurance companies won’t issue policies that go beyond the age of 75. Effectively, this limits your mortgage term to age 75.
Q: If you had to name one destination specifically in this country as your favorite, where would it be?
Lagos, the town where I bought an apartment last year. It has history and Old World charm, making it the kind of place I like to spend time. It’s big enough to offer developed-city amenities… plus, it has beaches.
When I’m back in Portugal next month, I’ll be taking a closer look at Lisbon. Prices are higher per-square-meter in the capital, but so are rents. My contacts have gotten me interested in the idea of a renovation project in this city. I’m going to investigate.
Q: What about the current exchange rate between the euro and the dollar? This is making the cost of living and of buying real estate in Portugal even more appealing, isn’t it?
Yes, the euro has been hovering between US$1.10 to US$1.15 for the last 16 months, which obviously makes costs in Europe much more affordable for U.S. dollar holders than the US$1.20 to US$1.45 rates of the previous three or four years.
The U.S. dollar could weaken again, of course, increasing the cost of living for U.S. dollar holders.
However, the window of opportunity for property purchase is big. If you buy a piece of property at today’s rates, you’re locking in your cost of housing at historically good rates. If your interest in owning real estate in Portugal is more for lifestyle than investment, this is without a doubt the time to act.
Q: How is your rental property working out for you so far?
My rental manager had the apartment rented within 48 hours of posting it as available for rent online and has kept it well occupied ever since. It’s booked through the high season (August).
I’ve chosen to make it available for short-term rentals only so that my family and I can have use of it when we want. I’m expecting a minimum net yield of 8% the first year, but it’ll probably be more. The 8% is if it doesn’t rent at all after the coming summer high season.
Live and Invest Overseas Managing Editor
P.S. Our team has produced a new Live and Invest in Portugal video. Take a look.