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Investing Opportunities In The Eastern Algarve


For many years there have been large numbers of foreign nationals coming to the Algarve for beach and golf holidays, winter sun, relocation or retirement, following in the footsteps of the British who in the early 1960s began to create the demand which has today transformed the Algarve into one of the world's foremost tourist destinations. The demand created by so many foreigners holidaying in or moving to the Algarve has paved the way for a new golden opportunity - rental investment.


The unrest and uncertainty in many other parts of the world has created a strong surge in demand in the Portuguese property market for both long and short-term rental. In 2017 Portugal moved up two positions to third in the overall Global Peace Index ranking, thereby consolidating its standing as one of the most peaceful countries in the world.


The many attractive government tax incentives such as the Non Habitual Residence scheme have further fuelled demand for living in Portugal and the availability of low-cost flights available from 141 different cities worldwide direct to Faro International airport have increased the number of visitors in recent years.

Interest in the Eastern Algarve as a retirement or relocation destination has been steadily increasing over the last three years. Many buyers and investors have already bought property in the Algarve and other parts of Portugal in anticipation of their approaching retirement. This is a sensible move as after years of falling prices the market reached a 10 year low in 2017 and presented the opportunity for some bargain purchases. Now with continued high demand and the current relative scarcity of properties the trend will be one of increased sales prices. Therefore, it is an opportune moment to invest in a property both for personal use and/or long or short term rental.


What kind of rental return should you expect? It very much depends on the type of property you purchase and whether long-term or short-term rentals are chosen. A realistic expectation would be between 3.5% to 6% per annum for long term rentals which are in high demand and increasingly difficult to find; but short-term rental is generally more lucrative. Tavira is unusual even in the Algarve for having a very extended season for short-term rentals, in or near the town many properties can achieve high occupancy rates year-round. The increased popularity of websites such as Airbnb have made renting simple and practical.


Short-term rental properties are in high demand in summer and experienced an average occupancy rate of over 90% during the summer 2017 season.


As an example, a 2 bedroom apartment costing around €150,000 could expect a rental income of €250-300 per week in low season (Nov, Dec, Jan and Feb); mid season €300-500 (March, April, May, June, September and October); and high season €750-950 a week (July and August). The annual return from this investment based on a conservative 60% annual occupancy would be in the region of €11,000- €16,000; giving a potential gross return on capital invested of approximately 7.5% to 10.5%


Whether you opt for short or long term rental there are several specialist agencies that will manage your property. Before deciding whether to rent short or long term, it is best to take financial advice from an accountant as the taxation rates vary. Where to buy for best investment, rental and growth potential? Many visitors prefer to rent properties that are close to the towns and beaches, with Tavira being the most popular town in the Eastern Algarve, and one of the best areas for long season or year-round rental. Areas such as Cabanas, Manta Rota, Santa Luzia and Fuzeta are also popular. There is also the likelihood of increased capital growth. The most recent figures show an increase in property prices of 3.1% across the Algarve in the third quarter of 2017.


One final aspect to keep in mind when considering a rental investment is that whilst the loan repayment is likely to remain fairly constant over time, inflation and the cost of living are likely to keep rising, and demand for property from overseas will keep creating demand. This ultimately drives up rents, especially if supply cannot keep up with the pace - which is what the Eastern Algarve is experiencing right now.