Research article

The Algarve At A Glance

The Portuguese economy is seeing some recovery, recording growth of 1.5% in 2015 and forecast to grow by 1.6% in 2016

Portugal's tourist industry is performing well

▲ Portugal's tourist industry is performing well

The southernmost region of mainland Portugal, the Algarve spans an area of 5,000 square kilometres and is home to a permanent population of 450,000. One of Europe’s most popular tourist destinations, the Algarve’s population more than doubles in the peak summer season.

The region is home to some of Europe’s top private resorts and estates. The area known as ‘The Golden Triangle’, including Quinta do Lago and Vale do Lobo, attracts Europeans and other buyers seeking safe, secure and private second homes in a sunny climate.

Figure 1

FIGURE 1The Algarve fact file

Source: Savills World Research

Central to the appeal of the Algarve is its excellent connectivity to the rest of Europe. Faro airport serves the Algarve and annual passenger numbers exceeded six million for the first time in 2014 (Fig 2), an increase of 34% on the previous decade. The airport provides direct links to 80 destinations across Europe, of which 23 are to UK airports.

Frequent services coupled with a flight time of under three hours (and a short transfer to the resorts) make the Algarve a viable weekend retreat. Faro airport is undergoing a €32 million expansion and remodelling programme that will result in a 25% increase in peak passenger flow capacity.

Figure 2

FIGURE 2Faro airport passengers

Source: Statistics Portugal

National economy

Portugal has a modern, service based economy, of which tourism is an important component but it is diversified by being a major agricultural producer, also having a large fishing industry. The Algarve is itself known for its agricultural produce, including figs, almonds, oranges, seafood and wines. It is the world’s largest cork producer.

Portugal’s economy was hit hard in the global economic downturn. Austerity measures, imposed as part of the country’s €78bn 2011 bailout by the EU and IMF, coupled with improvement in the macro economic context, have paved the way to renewed economic growth.

A new left-wing government coalition, united in their anti-austerity sentiment, was formed in November 2015 following October elections.

The national economy grew by 1.5% in 2015, and is forecast to grow by a further 1.6% in 2016, just below the Eurozone average of 1.9%. Unemployment stands at 12.1%, down from a high of 17.9% in January 2013.

Portugal offers certain competitive advantages that are helping to fuel its recovery. The World Economic Forum ranked Portugal 36th (of 144 countries) in its 2015-16 Global Competitiveness Report, scoring highly for quality of infrastructure. The country ranked 23rd (of 189 countries) globally in the World Bank’s ‘Doing Business’ rankings, in which Portugal scored particularly high for ease of trading across borders.

Tourism is performing well. The number of overnight guests grew by 8% to 17.4 million in 2015. The Algarve accounted for 3.7 million of these that year, making it the second largest tourist destination in the country after Lisbon. Services related to the tourist industry, such as accommodation and food services account for 17% of jobs in the Algarve, compared to 6% at the national level.

Mainstream markets

Portugal’s mainstream residential markets were hard hit in the economic downturn (in contrast to the prime markets of the Algarve, Residential Markets) but economic stability is now bringing improvement.

At the national level, prices grew by 3.4% in the year to Q3 2015, and now stand 9.1% above their lowest level of 2013. Positive annual growth has now been recorded every quarter since Q4 2013 (Fig 3).

More properties are now trading. Transactions increased 24.2% on an annual basis in the year to Q3 2015 to 103,000. New construction has seen modest pick up, but remains well below pre-crisis levels; 8,000 dwelling permits were issued in 2015, 88% less than in 2007 when 65,650 were issued.

Figure 3

FIGURE 3National residential markets return to growth

Source: Statistics Portugal

Locating in Portugal

Portugal’s ‘Non Habitual Resident’ (NHR) scheme offers tax incentives to those that have not been a tax resident in the country for the last five years.

NHR are exempt from personal income tax on income from a non-Portuguese source such as pensions, rental income, capital income and capital gains (provided that income is subject to taxation in accordance to the Double Tax Treaty).

For those working in Portugal, NHR status offers a flat rate 20% personal income tax on those in high value-added scientific, artistic or technical jobs. The scheme has been attributed with attracting new groups to the country, most notably the French.

Portugal launched one of the world’s most successful real estate investor visa, or ‘golden visa’ schemes in 2012. A minimum investment in real estate of €500,000 grants the non-EU buyer a visa (the right to residency and access to the Schengen area), and longer term, a route to an EU passport.

As of December 2015, 2,635 golden visa residence permits had been issued for real estate acquisitions, mainly in Lisbon, since 2012. The Chinese have accounted for 87% of these. Those from Brazil, Russia, South Africa and Lebanon make up the balance.

To date, the scheme has made relatively little impact on the Algarve, buyers instead favouring apartments in Lisbon at prices close to the minimum investment mark.

Figure 4

FIGURE 4The prime markets of the Algarve's 'Golden Triangle'

Source: Savills World Research


Lisbon has attracted significant foreign investment into its commercial real estate sectors, underpinned by recovering occupier demand and attractive yields (prime office yields range from 5% to 7%). German funds are active and competing for opportunities with funds from Singapore, China, Malaysia, Brazil, the US.

This pattern of purchasing in the commercial markets is an indicator of where potential new demand in residential markets could come from if the product and marketing is sophisticated enough to appeal to the same buyers. Of particular interest is Brazilian involvement in real estate which has been sparse at a global level to date, but has seen some flow into the Portuguese capital.

Lisbon’s prime residential real estate looks good value when compared to the competition, at roughly half the price of that in Madrid, and less than a tenth of London prime prices. An overhaul of Portugal’s leasing laws have made residential investment for long term income a more appealing proposition. This has also attracted the attention of institutional investors. US developer Eastbanc is redeveloping buildings into prime apartments in Lisbon’s Principe Real, a prime district within reach of key shopping districts.

The fact that Portugal is once again on international investment lists bodes well for the Algarve, in the hospitality and resort development sectors. Testament to this was the purchase of Vilamoura by Lone Star, a global private equity fund, in 2015.

Other articles within this publication

2 other article(s) in this publication