Hard times for Algarve’s luxury property developments

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While the area is well known for its upmarket golf resorts, developments by international brands are still a rarity on the Algarve. Now, three new schemes have launched at once: W Residences in Albufeira, Viceroy at Ombria near Loulé, and Wyndham Grand at Quinta do Lago.

Such developments, with their promise of a respected hotel name and guaranteed rental income, have been popular with “Golden Visa” buyers. Last year, the scheme — which launched in 2012 and grants residence status to non-EU investors who spend €500,000 on property — was expected to be its most successful, with nearly €500m being invested in the first seven months of 2019 alone.

However, since March 18, Portugal has been in a state of emergency to help combat the spread of Covid-19, and severe travel restrictions have been implemented, drawing a swift halt to property viewings.

Even before the crisis, there was some question over whether buyers in the Algarve would still be able to apply for Portugal’s Golden Visa programme, after the government announced in January that Lisbon, Porto and the country’s coastal properties will no longer be eligible for the scheme from early 2021.

It has yet to be defined how much of the coast will be excluded from the programme, but the announcement has cast uncertainty over the region.

The reforms are designed to promote investment in inland areas and steer overseas buyers away from saturated city markets — where the Golden Visa offering is blamed by some, including Socialist party leader Ana Catarina Mendes, for inflating house prices beyond the reach of locals. In central Lisbon, for example, prices rose by nearly 10 per cent in the year to November 2019, according to Statistics Portugal.

A first-floor, three-bedroom property with pool and sea view at W Residences in Albufeira, €1.465m

Some local estate agents think a blanket ban on Algarve properties is unlikely. “Non-EU investors who can no longer invest in Lisbon or Porto will look to other established, touristic areas of Portugal for reliability of rental income — and that can only be the Algarve,” says Lloyd Hughes, from property investment company Athena Advisers.

Put in perspective, Golden Visa buyers represented less than 7 per cent of all foreign transactions in Portugal in 2018, according to the Association of Portuguese Real Estate Professionals and Agencies. And the Algarve is not typically where they look.

Most Golden Visa buyers are looking purely at the highest return on investment, says Jamie Robinson, sales director at QP Savills. The Algarve is more of a lifestyle purchase and is therefore likely to attract buyers from another national scheme, the non-habitual resident programme, he says.

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The NHR has received about 29,000 applicants since it launched a decade ago — a third of them retirees. It offers a 10-year tax exemption on foreign-sourced income, including pension, if applicants spend at least half the year in Portugal.

That too is being reformed, though, following accusations of unfair tax competition from Finland and Sweden — and criticism from Portugal’s leftwing Bloco de Esquerda party that the scheme favoured foreign over domestic retirees.

From next month, new applicants will pay 10 per cent rather than zero tax on their foreign-sourced income. Jason Porter, a director at wealth and tax advisers Blevins Franks in London, thinks the reforms are unlikely to discourage people from retiring to Portugal in the long term.

“Ten per cent remains a very attractive tax rate, especially when you look at this in conjunction with potentially tax-free dividends, 20 per cent tax on earnings and the attractiveness of Portugal itself as a location,” he says.

In any case, with travel now impossible, purchases are being put on hold, says Robinson. Before the crisis, sales had been increasing in parts of the Algarve. Quinta do Lago, an upmarket golf community near Almancil, saw record prices achieved earlier this year with the sale of villas costing €14.5m and €17m.

Despite its restaurants and golf courses being closed, the resort is still pretty busy, says Robinson. “A lot of homeowners flew down before the flight restrictions came in, deciding they would rather ride out the storm here than in London.”

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Robinson will soon be launching Quinta do Lago’s Wyndham Grand — the redesigned and rebranded old Monte Quinta hotel — with serviced apartments starting from €450,000.

Further west, the beachfront W Residences saw its first phase of 12 apartments sell out within six weeks to 11 nationalities. “I’ve never seen that kind of diversity on the Algarve before,” says Robinson, who is marketing the next phase from €555,000 for one-bedroom flats.

A three-bedroom apartment in the development is priced at €1.465m, available through QP Savills.

At Ombria, a resort 20km inland from the coast, near the town of Loulé, branded residences from the hotel group Viceroy are available through Cluttons, starting at €360,000. When the resort opens in 2022, residents will not only be able to play golf, but to hike, bike and bee-keep.

In the meantime, Hughes hopes the travel ban will not end demand among the Algarve’s Golden Visa buyers, since many buy off-plan.

“This type of buyer wants to be as near the €500,000 property-investment threshold as possible,” he says, “and there is far more in the Algarve than central Lisbon at this mark.”

Buying guide

  • Travel to Portugal has been severely restricted since the country was placed under a state of emergency to help control the spread of Covid-19. These restrictions are not expected to be lifted until at least April 2
  • Portugal’s Golden Visa scheme offers residency to non-EU citizens who invest €500,000 in property. After five years, they can apply for permanent residency
  • The Algarve’s prices rose by 10.3 per cent year on year in November 2019, with an average of €1,736 per sq metre

What you can buy for . . .

€500,000 A two-bedroom flat near Vilamoura marina
€1m A 600 sq m, six-bedroom villa with pool in Almancil
€10m A 650 sq m, six-bedroom villa at Quinta do Lago

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