After a long recession in Spain and Portugal, there are signs that the second home market is starting to look brighter, at least in some places. Prices for good quality second homes have fallen by between a quarter and a third from the peak of 2007. This means there are still some bargains to be had.

Quinta do Lago in Portugal’s Algarve is a golf-centred development long popular with British buyers. In 2013 alone, 57% of all purchasers in the resort were from the UK. These are lifestyle buyers, typically in their fifties, attracted by the golf courses, sunshine and sea. Properties at the top end of the market there are still in demand and there has also been a resurgence in smaller town houses and the apartment market. This is in contrast to most of the residential markets in the rest of the Algarve, which remain extremely depressed.

Portugal’s golden visa scheme has seen significant uptake from the Chinese, who have focused their buying mainly in Lisbon. This reflects the still dominant preference of many Asians for urban properties.

Having said this, some of these buyers have purchased at Quinta do Lago, perhaps exposing a nascent wider potential for leisure-oriented real estate. Developers in the final stages of completing schemes are tailoring their packages around the golden visa categories with the €500,000 minimum spend in mind.

Durability and investment returns are at the forefront of these buyers’ minds; they are seeking a good rental and a property that will sell well in five or six years time.

The residential markets of the Balearics are as varied as the islands themselves. Ibiza has been the star performer, having refined its image in recent years. The island offers high end entertainment, retail and restaurants, attracting a diverse range of sophisticated buyers to its shores, typically aged between 35 and 50. The island is particularly popular with the British, but Spanish will also buy second homes here. In the best spots villa prices have recovered to their pre-peak levels. In neighbouring Mallorca, where supply is greater, the market has remained suppressed, although Scandinavians have been particularly active.

On mainland Spain, residential markets have also suffered significant price falls since 2008. Some buyers have taken advantage of this. In Sotogrande – a purpose-built resort 60km along the coast from Marbella – British, Russian and French buyers (who are often already familiar with the area) are benefiting from heavily discounted prices to buy second properties, some 30-40% below their former peak values.

Some purchasers have taken advantage of Spain’s low interest rates and obtained local mortgages, although the majority of buyers are equity-rich. Sales, however, continue to be slow and volumes remain well below previous levels in the face of 
still high supply.

Spain experienced extremely high levels of new development in the run up to the market peak – much of it aimed at second home buyers in coastal resorts. Housing starts peaked at 760,000 in 2006, but by 2010 they had dropped to under 100,000. As a consequence, new development remains largely unviable. Market activity as a whole is restricted only 
to the most established locations.

Taken from
Spotlight: Prime Residential Retreats 2014