By Mary Mangan
After a reasonable start to the year, the property market in Portugal has been sluggish during the second quarter of 2010.
The Euro has weakened slightly against Sterling in recent weeks, but by historical standards, Sterling remains low.
As UK buyers remain a strong force in the Portuguese market, we hope that this should have a positive effect in the medium term.
The confidence of buyers from Euro-based countries was temporarily knocked by the Greek crisis, but they have been investing and statistics would show that their property investment has gone into locations that they regard as stable, and fundamentally London remains an attractive proposition.
However, we have seen a number of northern Europeans back in the Portuguese market, with the Dutch in particular making purchases across the Algarve in Q2.
Looking forward, there are also signs that Saudi and other Middle Eastern buyers, whose currencies are largely pegged to the Dollar, may also shun the Euro Zone and its volatility in the short term.
Meanwhile, Moody, the ratings agency, cut Portugal’s debt rating by two notches to A1, saying the government’s financial strength was likely to weaken over the near-term.
It said the outlook was stable but added that Portugal may have to come up with more austerity measures to avoid a further revision of its rating.
Government finances remain the big issue for the country. Cross-party consensus has shored up José Sócrates’ vulnerable minority government.
But markets see Portugal as a sovereign-debt risk and this negative sentiment has had a depressing effect on the overseas property market during the second quarter of 2010 and this continued in July.
Volumes of transactions remain low. Vendors who plan to repatriate their monies to the UK have helped the market. They are in a position to offer value deals as this time around they are getting the benefit of the weak Pound.
However, vendors who operate in the Euro Zone do not have that flexibility. This, combined with the current exchange rate, means that some buyers are frustrated in their attempts to secure ‘good deals’ and they are simply waiting to see what happens rather than purchase at a price they consider expensive.
Portugal has long been a prime destination for foreign second-home buyers. It is one of the strongest sectors of the Portuguese economy and a source of income for the Portuguese Inland Revenue.
On a practical level, Portugal is an exceptionally pleasant place to live and certainly lures back scores of holidaymakers, year after year.
There are tremendous opportunities to be found in Portugal even in these challenging times – year round warm climate, red-cliff faced beaches, tennis facilities and world class golfing developments continue to generate returns on investment into property especially in the Algarve.
There will be no return at least in the short term to the levels of transactions seen in the heady days of 2007.
At this current time, it is vital that Portugal faces the challenges of the current economic climate head on and restore the confidence of the markets and the general public.
The Government must focus on the major task at hand and work with the developers to build confidence in Portugal as a viable property investment destination.
Mary Mangan is the Managing Director of Winkworth Real Estate Portugal. The company has six offices across the Algarve and a presence on the Silver Coast. Visit www.winkworth.pt