Remote Parts of the Algarve Attract Younger Workers Unable to Enter London’s Property Market

Portugal’s Algarve region offers affordable housing and outdoor lifestyle for younger professionals seeking an escape from expensive cities.

Portugal’s Algarve region, traditionally known for attracting wealthy British retirees, is now becoming increasingly popular among a younger demographic. The area’s stunning beaches, lower property prices, and the rise of remote working have enticed a new wave of individuals and families to settle in the southernmost region of Portugal.

While the Algarve has long been associated with golf resorts, luxury spas, and Michelin-starred restaurants, it is now capturing the attention of younger buyers who seek an improved quality of life and affordability compared to major cities like London or Lisbon. Cristina Santos of Engel & Volkers notes that more buyers under the age of 55, with active work lives and children, are choosing to settle permanently in the Algarve.

The golden triangle, consisting of Vilamoura, Almancil, and the resorts of Quinta Do Lago and Quinta Do Labo, is known for its luxurious properties and high-end amenities. However, the appeal of the Algarve extends beyond these areas. Remote parts of the region offer larger plots of land at more affordable prices, enabling young professionals to own homes with ample space and engage in various outdoor activities after work.

Armacao de Pera, a fishing village with a wide beach stretching to Praia da Gale, offers properties ranging from two-bedroom apartments to detached houses with private pools. The average property price in the village is around £285,000 (€332,000), providing an accessible entry point for aspiring homeowners.

One standout property in Armacao de Pera is the Red Chalet, a former family-owned summer residence transformed into a luxury villa. This palatial villa offers four double bedrooms and is managed by the renowned Vila Vita Collection. Guests can experience the area’s opulence before committing to a purchase, enjoying access to Michelin-starred catering and the hotel’s yacht.

Other remote destinations in the Algarve gaining popularity include Alcoutim, a small town on the Spanish river border, and Tavira, known as the “Venice of the Algarve” for its architectural beauty and cultural appeal. Ponte de Lima, one of Portugal’s oldest towns, attracts residents and visitors who appreciate its medieval charm, proximity to the Lima River, and outdoor activities like kayaking and mountain biking.

It’s worth noting that Portugal’s golden visa scheme, which granted residency to property investors, is expected to close by the end of June 2023 due to concerns about property speculation and price inflation. However, alternative long-stay visas, such as the D2 and D7 visas, are available to foreigners who wish to invest in property and establish residency.

As younger workers and families search for affordable housing and a high quality of life, the remote parts of the Algarve offer an enticing alternative to the expensive property market of London and other major cities. With its beautiful beaches, outdoor activities, and relatively lower property prices, the Algarve is becoming an appealing destination for those seeking a balanced lifestyle and escape from urban pressures.

Spasms in the UK mortgage market

…are causing concerns and raising fears of a housing slump similar to the late 1980s. The mortgage market, valued at £1.5 trillion ($1.9 trillion), is facing turmoil as lenders struggle to keep up with rising funding costs, driven by expectations of interest rate hikes from the Bank of England. Both prospective buyers and current mortgage holders are feeling the impact, with existing homeowners facing significant increases in repayments once their fixed-term deals expire. The instability in mortgage rates and availability has created anxiety among lenders and borrowers, potentially leading to longer-lasting damage.

Investors are closely watching the housing market activity, which had recovered in early 2023 but now faces uncertainty. Major lenders like HSBC have already announced changes to their mortgage offerings, with higher rates being implemented. The average mortgage rate on new two-year deals has risen to 5.90%, the highest since December 2022. Homeowners may face similar financial burdens as in the late 1980s, despite lower mortgage rates, due to higher borrowing ratios and other factors. The stress in the mortgage market could have ripple effects on the broader economy.

Increases in swap rates, a determinant of mortgage borrowing costs, have historically preceded declines in housing starts. Industry experts warn that the trouble in the mortgage market may persist, with uncertainty until policymakers gain control over inflation. Banks aim to lend through the challenging period but must carefully assess borrowers’ ability to repay loans at higher rates to avoid defaults and comply with consumer protection regulations.

While the situation is not seen as a repeat of the 2007-2009 financial crisis, banks are better capitalized today. However, economists expect a slowdown in spending, potentially leading to a mild recession, as households face increased mortgage payments.

New data from lettings agency Savills reveals

…a concerning trend in the buy-to-let sector, highlighting the age demographics of landlords and its potential impact on rental supply. The research indicates that a significant number of landlords who entered the market during the early 2000s buy-to-let boom are now approaching retirement age, posing a risk to the future availability of rental properties.

The figures show that there are currently 1,911,000 buy-to-let properties owned by 620,000 landlords aged over 65. Additionally, there are 1,982,000 properties owned by landlords aged between 55 and 64. This demographic distribution raises concerns about limited rental stock in the future.

Lucian Cook, the research chief at Savills, warns that while existing tenants may benefit from greater security, new tenants may face reduced choices. With fewer available properties, rental housing is more likely to be allocated to higher-paid individuals with more secure employment. This unintentional consequence could negatively impact less affluent households unless measures are implemented to increase the supply of rental properties.

Cook further highlights that average net profits for landlords have reached their lowest point since 2007. This decline is attributed to the cumulative impact of 12 successive increases to the Bank of England’s base rate and restricted tax relief. The combination of these factors has squeezed landlords’ profitability.

Cook predicts that 2023 marks a turning point for the private rented sector in the UK, following a prosperous period for buy-to-let landlords. Between 2014 and 2021, landlords typically earned cash profits of 23% of rental income in the first year. However, consecutive interest rate hikes have caused this figure to plummet to under 4.0% this year.

In addition to the interest rate increases, upcoming legislative changes, such as the Renters Reform Bill, the abolition of the Assured Shorthold Tenancy, and stricter EPC regulations, are expected to heighten investors’ caution. Landlords now face the prospect of having to invest in their properties to meet minimum EPC requirements, further eroding their profits.

There is a genuine risk that landlords, particularly those with high levels of borrowing, will exit the sector. This could exacerbate the existing pressure on the rental market, where demand far exceeds supply in many locations across the country.

Hong Kong-based asset manager Panda Residential

…is seeking to raise £1 billion from Asian investors to capitalize on the recovery of the UK commercial property market. The fund, which includes backers such as the heir of the Sasa cosmetics retail chain, plans to invest in pubs, hotels, and student housing during what it calls “depressed moments” in the industry, expecting a potential upside of 15 to 20 percent when the market rebounds.

According to co-founder Timothy Li, Panda Residential is already in negotiations with smaller landlords of pubs and hotels that have residential units or a mix of retail components. The fund aims to exit its investments and return the capital to investors within six years.

The UK retail property segment has been experiencing a decline, with average rental values dropping 17.4 percent below their peak in 2018 even before the pandemic. Rising interest rates have also affected home prices in recent months. These market conditions have attracted interest from major Hong Kong property investors such as CK Asset Holdings and Chinachem Group.

Panda Residential’s financial backers include QF Capital, co-founded and led by Patrick Kwok Ho-chuen, who is the heir of SaSa International. Li explains that the high interest rates in the UK have put pressure on smaller landlords, as the income from their properties is insufficient to cover loan obligations and satisfy lenders and creditors.

The Bank of England has raised its benchmark rate nine times since March 2022, reaching 4.5 percent from 0.75 percent, which has contributed to the challenges faced by landlords. Li believes that these interest rate hikes have created a mild depression in the market, making it difficult for yields on properties to meet the necessary levels in London.

Panda Residential aims to attract investors from Hong Kong, mainland China, and Southeast Asia for its UK fund. Road shows are also planned in Singapore and selected cities in mainland China. While Hong Kong remains a potential market, the fund is likely to focus on the UK due to the relatively higher property prices in Hong Kong. In the UK, Panda Residential is targeting smaller properties in the range of £5 million to £20 million per deal.

The Rise of Branded Residences: Hotels Taking Over London’s Luxury Property Scene

The rise of branded residences in London’s luxury property scene has transformed luxury hotels into long-term residential options. This trend has attracted affluent buyers seeking premium living experiences. One notable example is the OWO Residences by Raffles, located in the historic Old War Office building. Its rich history and association with prominent figures have captured the attention of high-profile buyers. The Raffles brand plays a significant role in attracting buyers, as residents not only enjoy luxurious living spaces but also have access to the hotel’s amenities and services.

London’s branded residence scene is growing, with 20 projects scheduled to open by 2030. However, it still lags behind Dubai, which already boasts over 40 such developments. Leading hotel brands like Marriott, Four Seasons, Hilton, and Hyatt, as well as non-hotel brands like Yoo, Trump, Armani, Versace, and Bulgari, are actively participating in the global branded residence market.

The power of a hotel brand is a key factor in the appeal of branded residences. Buyers are drawn to the assurance of receiving the same level of quality and service as they would in the hotel itself. Notable developments in London embracing the branded residence concept include The Whiteley by Six Senses, Mayfair Park residences by the Dorchester Collection, and No 1 Palace Street by the St Regis Residences.

Premiums for branded residences vary based on location, with an average global premium of around 30% over non-branded apartments. Emerging markets tend to have higher premiums, while cities like New York and London see relatively lower premiums. The reputation and quality of service associated with hotel brands are crucial in attracting buyers, although some non-hotel brands like Porsche and Aston Martin have successfully entered the branded residence market in specific locations.

In conclusion, branded residences have become a prominent feature of London’s luxury property landscape. These residences offer affluent buyers the opportunity to experience long-term luxury living with the trusted reputation of renowned hotel brands. With the market set to expand further, buyers can expect an increasing selection of premium residential options that embody the essence of a five-star hotel experience.