It's been said that Portugal is viewed as a relatively 'safe' property market, which ticks boxes for today's risk-averse investors. But the nation that survived the global downturn without being disproportionately affected has had trouble of its own this year, led by the level of its sovereign debt.
Ratings agencies Moody's, Fitch, and Standard & Poor's all downgraded Portugal's long-term credit rating this year, and when house prices faltered in June, after four consecutive quarters of growth, concern over debt levels was regarded as the trigger.
It was, by the slightest of margins. According to official data from Statistics Portugal, the average price of houses fell by 0.3 per cent in the first half, except in The Algarve, which bucked the trend with prices up 1.9 per cent.
Realtor Bart van Linden says the debt situation could have dented confidence among large institutional investors, while rising taxes (VAT) and the prospect of Portugal's main motorway becoming a toll road could affect tourism and real estate. But he feels high-end purchasers would not be put off 'as they are choosing lifestyle, and have plenty of cash available'. These buyers 'are looking for a luxury lifestyle under the sun. They don't really care what is happening, as long as there are direct flights from their home country', says van Linden, founder of Exclusive Algarve Villas.
Their location of choice is typically The Algarve, dubbed the 'California of Europe', with its glorious stretches of Mediterranean coastline. The five million-odd visitors who arrive each year don't only come for long, lazy days of sun, sand and seafood. The Algarve is home to several of the world's top golf courses, renowned dive sites, excellent sailing grounds, and a range of culinary experiences. Health tourism and renowned spa facilities make up another growing niche in the market.
While statistics show that Portugal's property peaked in 2004 and has been in recovery since last year, van Linden says the reality is slightly different due to big variations in the markets. 'For example, you can buy a nice three-bedroom villa in, say, West Algarve starting at around Euro300,000 [HK$3.2 million]. If you are looking for the same type of property in Vale do Lobo or Quinta do Lago, Euro2 million would be the minimum required.'
He also says there are some bargains around, especially in the low and mid-range properties, up to Euro750,000, which took 'a fairly deep dive' during the global recession.
For apartments and townhouses, van Linden says, expect discounts in the region of 15 to 30 per cent, 15 to 25 per cent for mid-range villas, and 10 to 15 per cent at the top end.
'Of course there will be individual builders, investors and vendors accepting larger discounts to get out of a deal. One needs to keep in mind that many UK buyers bought when the pound was high, so they can easily drop 15 to 30 per cent on the current exchange rate and still get their invested money back, perhaps even making a profit. UK buyers are responsible for a big part of the market, so the discounts you see might not always reflect a correct perspective of the market.'
Apart from The Algarve, Lourinha could be the next big thing in Portugal property, according to investment consultancy Property Frontiers. Director David Cox believes Lourinha, with 18 kilometres of coastline in the district of Lisbon on the so-called Silver Coast (Costa da Prata), could benefit from its location and a resurgence of overseas buyers.
'The Silver Coast is an emerging market within Portugal, which sprang to increasing popularity as the Algarve market was priced out of reach for the average buyer during the last boom,' Cox says.
'When the credit crisis struck, many people who were actively browsing the Silver Coast for the property of their choice immediately postponed their plans. Now, we are seeing these buyers starting to come back and put their plans back on track, as their confidence in the economic recovery, and things like job security grow.' Van Linden is also noticing an increase in offshore inquiries, citing a general belief that the markets are bottoming out. He forecasts another six to 12 months of sluggish business. However, it could be a quicker recovery. Markets such as Belgium, France, the Netherlands, Russia and Asia, and some buyers from the Middle East and Africa, are supplying 'a new type of client' for Portugal, van Linden says. 'They're buying either for lifestyle or middle to long-term investment.'
Construction is also subject to stringent planning codes to avoid the real estate scandals of Spain - another box ticked for investors.
'For Asian investors who have businesses in Europe, Portugal might be a good place to live and work. We have many clients who live in Portugal and work in London. They fly on Sunday to work and fly back on Friday,' van Linden says.
'Investment-wise there are opportunities for groups interested in land and hotels. In another booming sector, companies looking to invest in solar and wind energy will find the large plots of lands needed for these businesses can be purchased at much better prices.'