Retirement/Holiday Homes in Southern
Someone recently asked me
about the Portuguese property market. I do make regular updates on the
situation, and I'm sorry to say that nothing is improving. It's
beginning to get tedious to have to constantly trot out bad news, and
it's one of the reasons I no longer call Portugal "Home".
As regular readers of my blogs know, I trotted off to Central America
at the end of last year, and fell in love with Nicaragua. Apart from
Costa Rica, which seemed to be mired in disaster and desolation, I
found a part of the world where the people seemed to be happy,
well-fed, and living a more robust and enjoyable life. I prefer to be
surrounded by happy faces rather than doom and gloom.
Those of you who paid any attention to the BBC's absurd item on
Portugal's financial status must be wondering what the problem is. I
can only assume they got the office boy to write the article. It was
inane in the extreme.
First, the general picture. The 'kill everything that moves' economic
policy is set to continue, with higher taxes, less encouragement to
business, and a general retreat towards an even more hermit-like set of
policies set to take the country back into the past. The peasants are
getting poorer, and the dependency ethos is gaining ground. Over easter
the tourist towns were largely empty, and according to the hotel
booking sites hotel bookings were running at an average percentage in
the mid thirties, which is rather low for off-peak, and can only be
described as disastrous for peak holiday times.
It is not encouraging that political blunders continue at a cracking
pace, and corruption is rife throughout all sectors of the country.
In short, there are still long faces all round. But what about the
housing recovery? Glad you asked.
House prices are still falling, and, as suggested in an earlier blog,
they are pretty well guaranteed to fall for the next four years, as
banks are forced to sell off their duff inventory at properly
marked-to-market prices by the end of 2018. That backlog of stock will
keep prices significantly depressed.
Prices have still not reached the level that would make them
intrinsically balanced. I mean by that an equality in cost for the
property as a home to live in. You can still rent properties for a
cheaper real cost than purchase. That makes the choice to purchase an
economic idiocy. It also leads to an almost guaranteed lock-in to the
purchase as re-sale is going to be difficult at least going on to the
end of the decade.
The only valid economic reason for buying would be because prices are
going up, and expected to continue rising. Since it's already cheaper
to rent that is not about to happen. In any case, why buy into a
falling market? You rent till the tide turns, and that is not about to
happen any time soon.
In terms of retirement, a purchaser would want to have an exit route
should illness, infirmity, or simple change of mind require a sale. At
the moment, any such exit is going to lead to a loss. Anyone seeking to
move to Portugal should clearly rent not buy.
A question raised is: what should I do with the money from a sale of a
UK property? There are two answers to that. First, dont sell the UK
property. That will hold it's value. Rent it out, and use the rent to
live on and pay your rental costs in Portugal or elsewhere. That will
give you a better lifestyle than selling up and buying in Portugal.
Older people can benefit greatly from the extra income.
Secondly, if you have capital, invest it. I keep saying that there are
plenty of opportunities out there. I dont look at investments that
bring in less than 10% plus inflation rounded up. For a UK-centric view
that would mean 12%+. I can throw you a dozen safe investments that
will pay a lot more than that without even thinking. For a consistent
view, have a look at my Big Pension
magazine that comes out monthly and concentrates on precisely those
opportunities. Here's the link:
But what about the future? We keep being told that the borrowing from
the so-called Troika is over and went well.
Obviously the borrowing went well. Why wouldn't it? Any damn idiot can
borrow money successfully. The hard bit, the real test, comes when you
have to pay it back. Let's look at this calmly and simply.
The Portuguese government cant live within its means. The tax revenues
do not cover expenditure, so the government goes to the bond markets
and borrows to make up the shortfall. That still doesn't manage to
bridge the debt gap so the government has to borrow from the ECB.
From now on they wont have the borrowing from the ECB, so that money
suddenly disappears, so there is going to be a bigger hole in the
accounts. That means the government will have to borrow from the
commercial markets at a higher interest rate. That leads to a double
whammy. They wont have the original borrowings, and they will have to
pay a higher interest rate on any new borrowing. Perhaps someone can
tell me how that is going to lead to the return of the good times.
Conclusion: things can only get worse. I dont want to stick around, but
you might like to be there and watch the carnage. To put money into
Portugal in any shape or form you have to be a masochist.
What makes this even more dodgy is that I really think that interest
rates will have to rise in the not too distant future. The underlying
financial system is breaking up. When rates rise the government will
have such loan commitments that they wont survive. Taking this argument
to its logical conclusion is just too painful to undertake.
I cant see that the situation in Spain is any better. By all means move
to Spain, but once again, renting is the preferred option.
The clear message from all this is that whatever mess is coming, your
assets would be better off in England than in Southern Europe. Despite
this, I am diversifying my assets completely out of Europe, except for
some exposure in London, which I dont think will fail in my lifetime.
p.s. Dont forget to check out my Big