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Is there value in south European real estate?

The Golden Visas introduced by south European nations have heated up the property markets; is there still value for foreign investors?

The South European nations of Greece, Portugal, and Spain introduced Golden Visa initiatives after the financial crisis when they were keen to attract foreign investment to their economies to bolster demand and shore up weak housing markets.

The Golden Visa programmes have led to the heating up of the real estate markets in the South European countries where it is the most popular – Portugal, Spain, and Greece. The question now is does residential real estate in these countries hold value for international investors?

Qualifying for a Golden Visa in Portugal, Spain and Greece

Launched in 2012 by the Portuguese government, Portugal’s Golden Visa programme has helped attract investments of around €5 billion into the Portuguese economy. The Portuguese Golden Visa is available to anybody who is not a citizen of Portugal or belongs to a European Union member country. To qualify, one must make an initial investment of €500,000 in real estate and maintain it for a minimum period of five years. The investor also needs to spend a minimum of seven days in Portugal each year during the period. Investors can also become eligible for a Golden Visa by investing in refurbished older properties in certain locations for $350000.

In Spain, a minimum investment of €500,000 in Spanish real estate would make one eligible for the golden visa. This would earn the investor a one-year residential permit. However, contrary to Portugal, an investor is not required to spend any number of days in the country as compared to Portugal. He can apply for permanent citizenship after completion of five years.

Paul Williams, chief executive at La Vida Golden Visas, believes the Spanish Golden Visa programme offers investors less value than other European programmes on the market. It also has far less government support in promotion of the programme and has  apparently minimal direct economic benefit, in his opinion.

Greece, on the other hand, provides the lowest investment level of any citizenship by investment programmes in Europe. An investment of just €250,000 would make one eligible for a Golden Visa in Greece. The investor can choose to invest either in residential or commercial properties. He can invest in multiple properties or acquire one with joint ownership. Successful applicants and their families are able to benefit from visa-free access to Europe’s Schengen Area within two months of applying.One can apply for citizenship and a passport after the completion of seven years. After acquiring permanent citizenship, they are free to dispose off their investment as further visa renewals are not necessary.

Prices surge in Portugal and Greece; slow growth in Spain

Despite an economic slowdown, property prices in Portugal are on the rise. In the third quarter of 2019, property prices in Portugal increased by 7.92 percent year-on-year. According to reports, Portugal has become the Eurozone’s hottest property market ahead of Spain, seven years after introducing the Golden Visa programme.

Interestingly, even although Portugal is a hot real estate investment destination, home prices in Portuguese cities remain low. Home prices in Lisbon are among the lowest when compared to other Western European capitals such as Paris, London, Amsterdam, and Madrid. Besides Lisbon, housing prices in other Portuguese regions such as Porto, Amadora, and Seixel have also increased significantly. While Porto witnessed a 15.6 percent increase in 2018, Amadora and Seixel recorded growth of 14 percent.The 2008 financial crisis hit Spain hard.

So bad was the impact that housing prices in Spain declined for eight consecutive years. Only in the first quarter of 2016, did housing prices witnesse a growth in Spain. However, the market is changing and changing for the good. In Spain, housing prices grew by 5.3 percent in June 2019 year-on-year. However, the growth of housing prices in Spanish cities such as Madrid, Barcelona, Burgos, Valladolid, Malaga, Zaragoza, Valencia, Tarragona, and Palma de Mallorca has slowed down.

Greece too, was hit hard by the financial crisis. Between the crisis of 2008 and 2017, Greece’s property prices fell by 42 percent. But like Portugal and Spain, the country’s real estate has recovered from the crisis. Residential property prices in Greece increased by 7.7 percent in the second quarter year-on-year. It also happened to be the sharpest growth witnessed by the sector in more than a decade. The uptrend was witnessed in all the market segments throughout Greece. In Athens, property prices have increased by 11.1 percent year-on-year; mainly due to the Golden Visa programme.

Positive outlook for south Europe’s real estate market

For the prospective global real estate investor, the Portuguese real estate market might still be of good value because prices are comparatively low compared to other destinations in Europe. Luiz Felipe Maia, an international property specialist with a focus on European and the Brazilian market, and the founder of Maia International, told International Finance that he believes that there are a small percentage of investors that do not intend to live in the country, and this could have an impact on the properties that cost between 500,000 to $600,000. According to him, the non-habitual residence NHR programme that has been very popular will be able to fill a part of this market. The NHR has considerable tax benefits and to be part of this programme you must stay for at least 183 days per year in Portugal. This programme does not require its holders to purchase a property but they still need a place to live in, which has an impact on the rentals and sales market.

Even though Portugal is set to review the Golden Visa Programme, it is expected to have a limited impact on the real estate market. Kate-Everett-Allen, the head of International Residential Research at Knight Frank pointed out that there were some 7,498 properties purchased through the initiative according to government data since 2012 while 761,000 residential properties were sold nationwide during this period.

The outlook for Spain’s real estate investment is upbeat, with sales expected to increase from about 500,000 units last year to between 625,000 and 650,000 in 2019. In fact, real estate transactions are at the highest level since 2008. Sebastian Nieblas, chief executive at Amrein Fischer, a real estate agency based in Spain told International Finance, “The Spanish economy grew by about 2.6 percent in 2018, after growth rates of 3 percent in 2017, 3.2 percent in 2016, 3.6 and percent in 2015, The European Commission expects Spain’s economy to expand by 2.2 percent this year and by another 2 percent in 2020. Foreigners have a right to buy and resell all kinds of property – residential, commercial or land, with no limits.

All indicators show and positive and stable economic growth at least until 2023 and property value is increasing year by year, which gives investors a very positive picture. Greece too is emerging as a rising destination for the acquisition of second homes by international buyers. The number of real estate investors investing in Greece is expected to increase in the next five to 10 years.

According to Natalie Leontaraki, who holds the post of Managing Director at Engel & Völkers, the agency’s decision to expand in Greece is based on this sole factor. She told International Finance that Greece recorded the highest number of visitors globally in 2018 and the country is set to break its own record this year.

Top investment destinations in Portugal, Spain, and Greece

A major portion of the real estate investment coming into Portugal through the Golden Visa goes to Lisbon and Porto. However, cities like Braga and the outskirts of Lisbon have very attractive industrial and commercial real estate assets. Algarve, which is known for its Atlantic beaches and golf resorts, is one of the most popular holiday destinations in the country.

The region too, has seen substantial investment in recent years through the Golden Visa programme.

While the Golden Visa programme in Portugal has attracted many Chinese homebuyers, according to Luiz Felipe Maia, people from Brazil, Turkey, South Africa, Russia, and Hong Kong have been leading the enquiries for the last three months. He believes Brexit could attract many UK nationals as well.

Spain, with the Mediterranean Sea, sun and beaches, attract a lot of second homebuyers. While Madrid and Barcelona have always been the top investment destination for investors, Valencia and Málaga have also become very interesting options in the last three years.

Sebastian Nieblas highlighted the Costa del Sol, also called de European Florida, has also become a hot spot with cities such as Marbella, Estepona, Benalmadena, Torremolinos, and Fuengirola also attracting a lot of second homebuyers through the Golden Visa programme.

Chinese buyers dominate in Spain too, when it comes to the number of second homebuyers, accounting for almost 70 percent of the total visas issued. Second to China is Russia, however, the number of investors from Russia has been decreasing since the last two years. Interestingly, in 2015, Russia was the leading country when it came to Golden Visa investors. On third position is the US, followed by Venezuela and Iran in fourth and fifth.

Paul Williams told International Finance that while Spain attracts investors from all across the world, many inquiries come in from the Middle East and Latin American countries.

Demand for properties in Greece has soared 25 percent this year compared to 2018. Besides Athen, properties in regions such as Santorini, in Glyfada and in Mykonos attract a lot of real estate investors from the US.

The Athenian Riviera- coastal area in the southern suburbs of Athens attracts affluent, international clientele, as some of the most luxurious properties in Greece are found along this coast. Areas such as Acropolis, Koukali, and Metz are also in high demand.

Rental yields in Portugal, Spain and Greece

Rental yields in Lisbon, Portugal range from around 4.5 percent to 6.7 percent, and smaller apartments fall on the higher end of the yield range. Apartments in smaller cities like Cascais and Oeiras can expect to yield about 6.7 percent and 6.15 percent, respectively. Letting out properties on the short-term rental market has become increasingly popular with property investors in recent years in Northern Portugal. It allows the tenor to enjoy higher rental yields and increased flexibility.

In Spain, the median rental income of popular expat areas gives a yield of 4.8 percent. Rental investments in Barcelona are achieving an average return of 5 percent; however, the Costa Daurada region, south of Barcelona, offers particularly high yields. The average is around 5.3 percent. Similarly, Tarragonès has a rental yield of 5.8 percent. Also, rental yields in cities like Madrid are the highest in Europe.

In Athens, rental yield stands at around 4.2 percent for apartments of 120 square metres. Surprisingly, the gross rental yield in the suburbs of Athens is also good.  In Glyfada, 50 square metre apartments can yield 6 percent, whereas, rental yield for a 120 square metre apartments can be around 4.7 percent.

Is there value in south European real estate?

The real estate sector in European countries such as Greece and Spain were hit hard by the financial crisis of 2008. But after the global financial crisis in 2008, banking and financial laws in these countries have been reinforced and changed, in order to guarantee that the banking system offers nowadays guarantees, stability, and safety to investors. Kate Everett-Allen told International Finance that average prices in Spain and Greece still sit 22 percent and 37 percent below their pre-financial crisis highs suggesting prices remain good value. In addition, these countries offer good climates, easy accessibility, low mortgage rates and for investors, strong tenant demand.When International Finance asked the question to Luiz Felipe, he responded by saying,” Definitely, not only for Asian investors but from all parts of the planet.”

He said, “It is important to understand that Portugal is a country in a process of rehabilitation and renovation of properties and not so much about new constructions. When comparing with Miami where you put a house down and then erect a building with 200 apartments. In these Portuguese cities, in 90 percent of the cases, the same old building with the same number of apartments will get rehabilitated or renovated with the same number of units, it had 200 years ago. We are not oversupplying the market.”

Natalie Leontaraki, believes the market in Greece has potential and provides get real estate opportunities to investors. She told International Finance that since the end of 2016, the number of real estate investors in Greece is increasing. She anticipates the market to keep increasing for the next seven years and then stabilising. High ROIs, high yields, a low Real Estate Transfer tax of 3 percent, an easy process to purchase real estate along with the correction of the market are all factors that someone should be paying close attention to.

In Spain, the crash of 2008 was driven by excessive lending which led to an effective bailout of the Spanish property market by the ECB with funds channeled to the SAREB. At the time up to one million homes were sitting on the books of the banks to be sold off at a fraction of the price. Currently in 2019, 11 years after the crash, Spain is still selling properties below their peak prices.

According to Paul Williams, what has changed over the years for international investors, in particular, is the perception that a real estate market can keep rising indefinitely. The same can be said for the lenders who believed this and who also have greater controls today. He said, “So provided we don’t forget the lessons of the past we should all be fine. History never repeats itself of course.”

Constanza Maya, Head of Operations and Expansions of Engel & Völkers in Spain, Portugal and Andorra told International Finance, “So the recommendation is to invest, either in residential homes in the centre of large cities such as Barcelona, Madrid, and Valencia, or in newly built offices and surfaces of more than 500 square metre in modern business centres, sometimes located in specific districts of the city, such as 22@ district in Barcelona.”

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