Retirement And Real Estate Investment In Algarve, Portugal

The euro is down to about US$1.10 (that’s the bank rate I got sending U.S. dollars to France a few days ago).

In Portugal (where they also use euros), the property market is still way down in the dumps, just beginning to show signs of recovery from its real estate crisis of the last seven years.

Those two factors—a weak euro and a down-and-out property market—mean that ocean-side condos along Portugal’s coast can be a screaming bargain.

With US$200,000, you could buy a two-bedroom apartment of 900 to 1,000 square feet in Portugal’s Algarve region, within walking distance of the beach and close to a golf course. Don’t want to spend that much? No problem. With US$100,000, you could buy a comfortable one-bedroom place, also near the beach.

Europe is on sale thanks to the 25% drop in the value of the euro against the U.S. dollar since July. With property prices still trying to recover in many parts of Europe, particularly in Portugal, the time to buy is now.

The euro could continue to fall and is generally expected to reach parity with the U.S. dollar. That could amount to another 10% boost in buying power for dollar holders. Should you sit back and wait for your dollars to grow even stronger? I don’t think so, for two reasons.

First, I think we’re at the bottom in Portugal. The time to be shopping is right now. Property prices are beginning to pick up in certain areas. Wait for the U.S. dollar to go up further, and you could lose more than that currency gain to rising property prices.

Second, I never recommend trying to time currency movements when planning a real estate purchase. Currencies can move fast and against you. Property values usually move more slowly.

When you identify a market of interest, you want to position yourself in that market so you can be ready to take action when a property that fits your needs presents itself… regardless (well, within parameters) of where exchange rates stand at that moment.

The Algarve is such a market of interest right now.

Whether you’re looking for a vacation home or thinking about a permanent move overseas, in retirement or earlier on, with a business or a family, this country has an awful lot to offer, especially along its southern coast. And the important point to keep front and center in your thinking is that prices in this charming, sunny region may never again in our lifetimes be as attractive in U.S. dollar terms as they are right now.

If you’re in the market for a vacation home on the Continent, a second home in the sun that you could rent out when you’re not using it, the Algarve has an important advantage over the Spanish costas (another region that you might also be considering in this context). In Portugal, the tax on property rental income for nonresidents is 25% of net income. In Spain, it’s 24% of gross income. That’s a big difference.

In addition, transaction costs for buying property in Portugal are less than in Spain. Portugal imposes a transfer tax that is tiered based on the value of the property. Buy a property for less than €92,407, and you pay no transfer tax. From that price point, the Portuguese impose transfer tax at a rate of 2% of the value over the €92,407 base up to 8% for values between €287,213 and €574,323. After €574,323, the tax reverts to a flat 6% of the total price.

Bottom line, the most transfer tax you’ll pay in Portugal is 6%, but you’ll pay much less if you’re buying something small. The truth is, in today’s market, it’d be hard to spend more than a half-million euros here unless you’re really looking to go all in.

In Spain, the transfer tax starts at a flat 7% and can go up to 10% in some of the autonomous areas.

Portugal also offers the advantage of an active mortgage market for nonresidents. You can borrow up to 80% of the purchase price if you qualify. Note that banks cap mortgage terms at 75 or 80 years of age, depending on the bank.

One final advantage of buying property in the Algarve is the large English-speaking infrastructure thanks to centuries of connections between Portugal and Britain. You’ll have no trouble finding English-speaking real estate agents, bankers, attorneys, and other service providers.

The factors at work in this market are too appealing to ignore.

Lief Simon

“Lief, I have been reading your and your wife’s letters for years and did extensive research on Cuenca, and we are just back after staying there for three months. I missed the part where you say to stay away from El Centro because the noise level from the constant bell ringing and street performers singing and beating on their drums till the late hours through the week and on the weekend will drive you nuts.

“I missed the part of their actions at Carnaval where they will dump water on you from balconies above or throw water balloons and spray you with water pistols while you are standing on the corner waiting to cross.

“I missed the part concerning walking on a sidewalk and having three or four abreast coming at you. They expect you to move out of their way and the distain (sic) look on their face shows exactly what they think of you.

“In 14 years of travelling through Europe and Africa we’ve never met a more ignorant race of people. You couldn’t pay us enough to go back to Ecuador. We watched them march through the streets because of the taxes on imports Correa has instituted and one flag was one-half red and the other half was very similar to the Isis flag. Things there could get messy real quick, and I’m glad we are out of there.

“You probably won’t post this, but that part doesn’t bother me as I’ve done all I could to report honestly what is happening in Ecuador and you will have failed your part and that’s something you will have to live with.”

B.U.

So… Ecuador and Cuenca aren’t for you.

I’ve spent time in El Centro and didn’t notice the bell ringing or the street performers at all hours. Maybe the ringers and the drummers were all away on holiday all the times I’ve visited?

As for Carnaval, you haven’t been reading carefully. We’ve written often of the role water plays in Carnaval celebrations across the region. We’ve been the victims of water sprays and worse in Panama. I haven’t had the pleasure of Carnaval in Ecuador, but I figure it’s similar. It’s part of the culture, a tradition.

I haven’t seen four abreast in Cuenca’s El Centro. That must be a sight. The sidewalks, as I recall, are narrow. Ecuadorians are small, but they’re not that small.

Every county has its pluses and its minuses, and every man’s plus can be another man’s minus… and vice versa. We’ve all got our own prejudices, preferences, priorities, and pet peeves. You don’t like being sprayed with water during Carnaval… so don’t be on the streets during Carnaval.

Someone who moved to Belize a couple of years ago wrote in to complain that we hadn’t warned her that farmers in that country burn their fields every dry season. I figured she was right. We probably hadn’t ever written about that local custom. Hard to report at all times on all points related to every destination on our radar… and impossible for us to predict what will strike each reader as a deal-breaking minus.

That’s why we recommend that anyone considering moving to another country try it on for size by visiting in person and sticking around for a few months before committing.

As you’ve opened the door to the discussion, I’ll speculate that your discontent with Cuenca runs deeper than your reaction to a bit of water being sprayed on you during Carnaval or the looks of disdain you perceived from the people walking by you on the street. I hope you find someplace you’re happy with for your overseas retirement, but I wouldn’t bet on your chances.