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67% return on holiday property in Portugal

11 de January, 2019

67% return on holiday property in Portugal

Reading: 6 min

Small supply and sustainable demand growth. These are the two magic words that when combined result in first-rate real estate investments.

When I select a location, I want to make sure there won’t be a flood of new properties that force the price down. The limitation may be geographical or legal, when the government does not authorize new construction.

The second component is growing and sustainable demand. The place needs to be able to attract new people who have the capacity to pay more, either because it has a tourist vocation, quality of life or good jobs and business.

Porto has all that

Porto is ideal because the tourist center is an extremely small geographical area with limited stock of properties. New land is very rare. There’s no way to add too many new square meters, just refurbish.

It’s an insurmountable legal restriction. The city is keen to preserve the architecture of the late nineteenth century, which is considered a heritage of the country. We can count on that barrier in the new offer.

The city is destined to grow only on its fringe, never in the historic center, but the attractions for tourists, including restaurants, parks, museums, bookstores, shops and wineries are all concentrated in this small core.

And it doesn’t take any genius to realize that there is a virtuous cycle underway in tourism in Portugal. The more tourists that show up, the more investors get excited about renovating their properties. The government collects more taxes, does recovery works, making the city more and more beautiful, attracting more tourists.

The experience is great. The city has natural beauty, unique architecture and impressive history. The food is great and cheap. In Porto, a beer costs €0,90! A complete lunch – starter, main course, dessert and wine – is served for €5.5 in a traditional tavern.

To arrive and stay is also very cheap. Low cost companies sell flights of €10-€40 and a good bed costs €20 per night. Any middle-class European citizen can afford to pay for this, which means that in Europe alone there are about 350 million potential customers for a little visit to Porto.

They are people with purchasing power to pay more, increasing the revenue of real estate and thus also the appreciation. The Port’s scenario is one of increasing prices as the process of upgrading the city’s recognition continues.

It’s no coincidence that tourism in Porto is growing all the time. The performance leaves no doubt. Demand for housing has almost quintupled since 2001.

THE CITY ENTERED IN THE WORLD TOURISM MAP in a definitive way, being considered as a consolidated destination.

Porto’s tourism is a business with clear competitive advantages difficult to replicate that support a growing trajectory of its sales in the long term, both in its volumes and prices.

And the best way to surf this wave is to provide accommodation for this avalanche of tourists.

Why not Lisbon?

Investing in a company that presents sustainable growth is the dream of any investor, right? So why don’t we just invest in Lisbon, which is the largest city with the largest volume of tourists?

In the purchase of any asset, everything depends on the price and today Lisbon costs more expensive and yields less for the investor. This award in relation to Porto is at the same time a great injustice and an opportunity for the intelligent investor.

If you intend to invest in tourism properties, in our research we found that the Port presents return prospects that are on average 50% higher.

I love Lisbon, I don’t honestly don’t think the premium is worth it at the moment.

The region of Campanhã

To catch this favorable wind of tourism in the best possible way, the ideal is to select regions in transformation, because we can still pay a price comrade based on the daily rates that are being practiced today, with the hope that prices will rise when the environment improves. If the thesis is not proven, there is no problem, because we pay a fair price for the current reality.

That’s where we come in with the Campanhã region, whose reputation precedes it. It was already considered unsafe and relegated to the background – remembering that 5 years ago it was the very expensive historic centre of Porto that had the same reputation.

The change is already underway. The private sector has bought land and buildings for rehabilitation, especially in Rua de Pinto Bessa, the only one recommended for investment, which is already recovered in 50% of its extension.

With the works already in progress it will reach in 2 years about 70% and in 5 years it will be completely transformed for tourism.

The city hall of Porto is also investing heavily in this eastern region of the city. There are more than €50 million to transform the old slaughterhouse into an office for technology startups and cultural center and ends with the expansion of the train and metro station and the inclusion of a bus terminal.

It is on this street that the Pinto Bessa II Development is being built. It’s the biggest and most complete on the street. It has an enormous façade – a differential of valorization – that was only possible by the aggregation of several lands of difficult replication.

The developer has more than 10 years of experience and has just launched the second phase of this venture. The construction will be with a large Portuguese company.

While in Flores and Allados the square metre is only €5,000, in Almada and Santa Catarina it’s €4,000, in Pinto Bessa it’s less than €2,300.

To be exact, the 1 bedroom apartment with 69 m2 is priced at €155,000 or €2,246 per square meter.

You can search at will that you will not find anything cheaper with this quality in a main tourist street of the city of Porto.

The expectation is that the ready apartment is sold for at least €3,000, remembering that this price is even without considering any valuation of the area, simply because this is the selling price of ready-made property in the region TODAY.

Buying at the plant and selling near delivery the expected return on capital invested (ROI) is 67% or €52,000 (R$218,000) for the investment in T1, considering the sale before delivery.

The payment conditions are 50% in 3 or 4 installments during the works and 50% in the deed, a portion that can be financed.

The potential revenue as a tourist property in the region is €20,000 per year with a daily rate of €70 and 80% occupation, which represents a yield of 12.9% per year, which is 29% higher than the average for the city of Porto.

Cheers,
Marcio Fenelon

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Author: Marcio Fenelon
Real Estate Investment

Disclaimer

The report reflects only and exclusively the personal opinion of the expert.

The study is based on publicly available information considered reliable at the time of publication.

The content contains estimates based on expectations that are subject to change and may not be confirmed.

The addressees shall make their own analyses and take the investment decision solely on the basis of their own judgment.

Although the report is free of charge, Atlantic Bridge has entered into a partnership to receive compensation in the event of a business being completed.

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