Algarve’s ‘Golden Triangle’ hails end to falling property values

Visitors arriving by plane to southern Portugal’s Algarve region are greeted by views of beaches, tidal channels and big detached homes. Dry, hot summers and mild winters – and above all a wide range of golf courses – have attracted many British and Irish second-home buyers to the area over the past 30 years.

According to Andrew Coutts, managing partner of the ILM Group, a hospitality and real estate consultancy based in Portugal, “the property market was in free fall for four or five years, but our research has shown that prices stabilised in the summer of 2012”.

Prompted in part by the dearth of official data on property prices in the country, the ILM Group in June released a survey of 13 leading players in the Algarve market, including Quinta do Lago and Vale do Lobo, the two largest property schemes in an upmarket area referred to as the “Golden Triangle” (the triangle has Quinta do Lago and Vilamoura at its southern points, with Loulé, a town 10km inland, in the north).

“We were surprised by the findings. A majority of respondents said the market had already reached its lowest point. Sale prices of €1m-plus homes rose by 5 per cent between the first four months of 2012 and the same period this year, and villas represented 46 per cent of all sales,” says Coutts.

With the wider Portuguese economy mired in recession (unfinished housing projects are visible in some of the Algarve’s secondary locations, particularly around the town of Albufeira), this is particularly welcome news for the Quinta do Lago resort, a development of 550 villas and privately owned condominiums that broke ground more than 40 years ago.

The project is spread over 800 hectares and is home to three golf courses. Quinta do Lago has just released 26 new plots sized between 2,000 and 3,000 sq metres on a tract named San Lorenzo North, which fronts a fairway and a tidal inlet, in what it describes as the scheme’s last major sale of building land.

“The idea is not to flood the market with all the plots at once,” says Jamie Robinson, a property sales consultant, “so we put four on sale initially and three of these have already been bought.”

Robinson estimates that house prices in Quinta do Lago are down 10-12 per cent from their highest point, in 2005, “but we have weathered the storm well when you consider that the value of some detached homes in the Algarve has dropped by a third”.

A 535 sq metre five-bedroom, five-bathroom show home on a 2,200 sq metre plot at San Lorenzo North, surrounded by umbrella pine trees, is on sale for €5.9m. The cube-like house is deliberately understated when viewed from the roadside, and also includes a 235 sq metre basement with a spa and home cinema. An empty plot of the same size at San Lorenzo North is offered for €2.75m.

“The architects decided to go without a formal dining room in the house, since most entertaining takes place outside these days,” says Robinson. Instead, an outdoor reception space is centred on a marble-clad swimming pool, which has a metallic green hue when illuminated at night.

Many of Quinta do Lago’s earliest villas are being torn down and replaced, with a more minimalist feel now preferred to the traditional estate mansions. Crucially, none of these earlier homes had basements.

Vale do Lobo, its main rival on this stretch of coast, was founded in 1962 and contains some 1,500 properties on 450 hectares and two golf courses. As in Quinta do Lago, the feeling of being in a secure environment is a big draw. “We have a security team patrolling 24 hours a day and a closed-circuit TV system surveying the resort,” says Alda Filipe, Vale do Lobo’s director of sales and marketing, who describes her development, which has a medical centre, a bank and a supermarket, as a “home from home”.

A three-bedroom villa with 380 sq metres of living space on a 950 sq metre plot close to Vale do Lobo’s tennis academy is on sale for €1.92m. The property has its own outdoor swimming pool and is within walking distance of the beach.

Meanwhile, Sotheby’s International is offering a five-bedroom, five-bathroom detached house on a 4,000 sq metre plot in Vilamoura, close to the town’s international school and pretty Falésia beach, for €3.15m.

But attracting more full-time residents – who would spend money in restaurants and other on-site facilities more evenly throughout the year – is a longstanding conundrum for high-end schemes in the Algarve. Just 7 per cent of Quinta do Lago’s properties are occupied as primary homes.

Faro airport has regular flights to a range of cities in the UK, Germany and the Netherlands, making the occasional commute to northern Europe a feasible proposition. Also, well-established international schools are close to both projects.

The Portuguese government is making it easier for wealthy non-EU nationals to settle in the country. Under the golden visa scheme, applicants can get their residency papers if, for example, they make a minimum €500,000 investment in property.

But with 55 per cent of purchasers in the ILM Group survey coming from the UK, the Algarve’s big strength – its capacity to attract a large volume of British second-home buyers – is also, potentially, its weakness. If sterling drops sharply against the euro, there is always the risk that a critical mass of Britons will delay buying. Established homeowners from the UK might also sell up and convert their euros to sterling at an attractive rate.

New fiscal arrangements may also dissuade some potential buyers: owners of properties worth more than €1m are seeing their running costs increase this year with the introduction of a new “mansion tax” of 1 per cent of the ratable value, backdated to 2012. Estate agents and homeowners alike are hoping that this tax – introduced as an emergency measure and in force for two years – might be shelved in 2014.

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Buying guide

● Buyers should budget 7 per cent of the purchase price to cover transaction costs

● After the British, the next biggest buyers of high-end property are Swedes, Russians and Chinese

● The Algarve enjoys more hours of sunshine than any other region in Europe

● In winter the temperature never drops below zero

● Reported overall crime in the Algarve fell by 4.4 per cent in 2012 compared with the previous year

● No inheritance tax when assets are passed on to close family members such as a spouse or children

What you can buy for . . . 

€100,000: A large range of one-bedroom apartments requiring some updating

€1m: A four-bedroom detached home with a swimming pool on an 800 sq metre plot in an established condominium

€5m: A recently built six-bedroom detached house on a 3,000 sq metre plot in a primary location

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Nick Foster was a guest of Quinta do Lago; www.quintadolago.com