The popularity of Portugal as a holiday destination and place to live seems to have no limits. This is reflected in increasing rental values as well as property prices. Property prices seem to defy gravity from rising interest rates and the subsequent reduced affordability ratio whereas in other European countries the prices have fallen 2 to 6 % over the past 12 months. Can Portugal avoid a price correction?

Popular programs such as the Golden Visa, NHR, D7 visa and more recently the introduction of a Digital Nomad visa have attracted many expats to the country. Although the Golden Visa has been stopped, it is likely that foreigners will continue to come to Portugal for long stays during the winter months. There are also many who want to live here on a permanent basis, either through renting or buying a property. Over the past three years there has been a noticeable increase in Americans and Canadians. During this period the Tourism board of Portugal has heavily promoted the country which was quite successful judging by the increase in the number of people visiting the country. Of course Portugal has much to offer. It is a 1^st world county with a pleasant Mediterranean lifestyle, mild winters and with over 3000 hours of sunshine ideal for outdoor activities, a still affordable cost of living, low crime rates, clean air and beautiful landscapes. Speaking with many Americans and Canadians, it is evident that many are dissatisfied with politics and social problems in their own countries. Also, destinations that were formerly popular for vacations and permanent residence, such as Costa Rica and Mexico, have lost part of their allure due to rising crime rates, with the latter experiencing a wave of drug-related crimes, including shootouts between gangs in popular touristic areas. It also is additionally beneficial that American celebrities like Madonna and more recently Nicole Kidman, Sharon Stone and George Clooney are investing in the country.

Is there no end to the popularity of Portugal? Well in our opinion when newspapers have one screaming headline after another about how good life is in Portugal, property prices reaching new all-time highs, more American and Canadian citizens are considering to come to Portugal etc. then you know that in one way or another the property market is near a peak, if it has not already peaked. Another sign is the opening of offices in Portugal by some high end American Realtors such as Nest Seekers and The Agency. They target the top end of the real estate market. Often when the property market has been strong for a long period foreign realtors enter the market which could be another signal that property prices are hyped up and a correction is in the offing. For some the lower prices will of course be a blessing in disguise.

Portugal has a shortage of affordable housing to buy and to rent, just like many other countries. This is the result of 40 years of under investment. Instead of looking at the underlying reason for the problem, for which this government is equally accountable for as during their administration they have failed to allocate sufficient funds to resolve this problem. Consequently a scapegoat is needed to cover their own failings, so it is easier to blame Alojamento Local (AL, short term holiday letting) for the short fall. To use a popular term:  this is fake news. As there are some areas in Lisbon and Porto with 65 to 90% AL causing an imbalance between holiday makers and residents, this is not the case for most of the country. A blanket solution to deal with this issue on a nationwide level is not the solution. Out of the total housing supply only 2% is used for AL. Of this 70% are second homes who would never become available for long term letting of 1 year or more. They are available when the owners are not using the property themselves for either short term or long stays during the winter months. In addition, even if these homes would be available to buy or to rent, they would be unaffordable for the people that need them. The lower end of the market needs a different type of property. If building such a property would be profitable there would not be a shortage. In the meantime AL offers accommodation to a specific part of the market; families who find self-catering accommodation a more affordable option versus staying in a hotel, it caters to the expats who like stay in the winter months in Portugal as well as Digital Nomads. It acts as oil between the wheels in a market niche which the available types of accommodation cannot fulfil. Of all overnight stays,  42% is in AL. Local housing provides employment to over 60000 families, not to mention all the supporting businesses like laundries, plumbers, handymans, electricians, gardeners, pool men, constructors, painters, and secondary the restaurants, bars, local supermarkets, DIY stores, hairdressers, etc.  To put things in perspective, 14% of GDP is coming from tourism revenues, equal to 18 BLN euro annually. The Algarve is depending much more on tourism, so for the local economy this percentage is a lot higher. This includes hotels, B&Bs, AL etc. If 42% is derived from AL, surely part of this income can and should be allocated to provide affordable housing. The problem with socialist parties in Portugal is that they often have communist ideologies meaning if there is an issue they prefer to solve it by increasing taxes or, as is the case with AL, to eliminate it. This kind of behaviour is similar to a parasite living of their host until it dies. The more logical approach would be one of symbiosis; here the proceeds of the increased economic activity due to AL could be used to provide for affordable housing for those in need. Despite the housing shortage, the government strategy to attract more people to Portugal was recently reiterated on the 23^rd of April 2023 by Ana Mendes Godinho, Minister of Labour, speaking about the need to have capacity to attract digital nomads, a visa that was created in October 2022 when there was already a shortage of affordable housing, without a housing strategy other than stating that it would be beneficial to the interior of Portugal. Digital nomads are often well educated young professionals who can work anywhere in the World, as long as there is a good internet connection. They also want to unwind after working hours, so they prefer places close to or on the coast with ample nightlife. That is a far cry from life in the interior! Often digital nomads and expats in general have more money to spend on housing, whether on rentals or purchases. At the moment there are 650.000 foreigners working in Portugal representing 10% of the workforce. That is 6 times more than in 2015. They contribute 1.8 BLN Euro in social security payments per annum. While subsequent governments have ignored the need for affordable housing while promoting various programs as mentioned earlier to attract foreigners with more purchasing power without providing affordable housing is not just a flaw in policy; they have let down a vulnerable part of the society who most needed support from the state.

While on the one hand the government has been successful in attracting foreigners (NHR, D7 visa, Digital Nomad visa), it took the economic benefits for granted and should have used part of the additional income to support and build affordable housing. The sole purpose of a government running a country is to step in where the market fails or does not exist yet. Examples of this in the previous century are the start-up of postal services, building an electricity grid, railroads and airline (this one being TAP, still a hot potato which should have been privatised a long time ago). Now there is a need for a strategic plan for more affordable housing. With all the additional revenue that comes from expats choosing Portugal, the government has ample funds to resolve this problem, although it will take years to build these homes. Portugal has one of the most rapid aging populations of Europe. It needs to attract foreign workers to do the work.

If you would like to sell your property and/or you would like to know more about the cost saving opportunities in case the measures involving AL are implemented, contact us for a no obligation meeting to discuss your situation. In case you have your property on the market and it is not selling, what is your strategy when prices fall? Do you need a second opinion from professionals who have been in the market for more than 20 years? Contact us to make an appointment.

Robert Bijker
Director