Twelve months ago, some foreign prospective buyers expected lower house prices across the board because of relatively high interest rates, leading to mortgage defaults and forced sales. They proved to be wrong, for the reasons outlined in our December 2023 article. Although some overpriced properties have come down in price, the general trend has been upwards, despite various escalations in the war between Russia and Ukraine. As bad as the war is, it does not seem to matter much until it does. The same goes for the possibility of trade wars between the US and other regions of the world when President Trump takes office next January. Trade wars only create economic losses; there is nothing to gain. That said, as a potential buyer, there are always things to worry about when deciding whether or not to buy a property. But the truth is, in the long run, it does not really matter. During the subprime mortgage crisis in the US in 2008 and the subsequent global financial crisis and European banking crisis in 2012, house prices plummeted. Covid-19, no impact on the housing market. In fact, from 2003 to December 2024, the price increase of properties in the Algarve was between 7.8 and 8.5% per annum, depending on the type of property. This has not been a straight line upwards; there have been corrections in between. People who decided not to buy when prices were low, fearing further downward pressure, have missed out in the long run. There is a similarity with equity markets. Over the same period, the average return on the S&P500 has been 8%. It makes sense for a diversified investment portfolio to include property, and many do. This can be a property that is rented out on a long term basis or a holiday home for your own use that can generate income when you are away. For short-term holiday rentals, you need a rental licence (Alojamento Local, or AL for short).

Its also been a year since the PS introduced the foolish and disastrous Mais Habitacao program, which caused confusion and a loss of confidence among both potential buyers and developers of property in Portugal. This resulted in fewer property transactions. In the run up to this, developers were less keen to start new developments at a time when the market needed more properties, not less. However, the new PSD Government made good on its promise to reverse the Mais Habitacao program. Various restrictive and punitive measures have already been reversed.

The last hurdle was to allow new AL licences to be issued and, when a property changes ownership, to be able to transfer the licence to the name of the new owner. This came into effect on 1 November 2024, by which time local councils can now decide whether or not to issue a new licence, depending on the market saturation of existing ALs in a given area. If an area already has a large number of ALs, the council can declare the area a containment zone where no further ALs are allowed until further notice. With the new government being more pragmatic, confidence is returning and the number of new developments have increased in Q2 and Q3 of 2024. Note, be aware that as an AL owner you must have valid public liability insurance specifically for the operation of an Alojamento Local. You must also register the policy with the eGov portal each year. If you fail to do this, you will lose your AL licence.

There are many changes to the AL legislation and we have only covered the main points. Another important change is that condominiums can no longer object to an AL by a majority two-thirds vote of the permillage. From now on, there must be a reasoned deliberation approved by 50% or more of the permillage of a building or complex, which means that there must be a proven history of nuisance affecting other owners in the condominium. A request must then be made to the Major, who can make a decision. The Major can, if necessary, call in an AL ombudsman to invite the parties to reach an agreement by accepting obligations and conditions. This seems to be a much fairer solution for all parties involved than the previous legislation.

So what can we expect in 2025?

It seems unlikely that prices will rise by another 8%, the average of the last 21 years. On the other hand, trade wars increase the cost of goods, which could lead to higher costs for new homes.

At the moment, the economic slowdown in Europe warrants a lower interest rate, but if inflation remains high, this may be difficult to justify. Lower interest rates make it easier for those who need a mortgage to buy a property. Some potential buyers may put their plans to buy a property in the Algarve on hold due to the uncertainty. On the other hand, we expect demand from Canadian and American citizens to continue. Especially from the latter now that Trump has won the election. We also expect more social housing to become available, as several developments were launched in 2024. This will not solve the shortage of affordable housing, but it is a start.

If you are the owner of a good quality property and would like to sell, rent or find out more about your options, please contact us.

We wish you and your loved ones a happy holiday season and a prosperous 2025!

Robert Bijker
Director