PROPERTY Inflation... as safe as houses

INFLATION...

AS SAFE AS HOUSES

PROPERTY MANAGEMENT HAPPY HOMES ALGARVE

ALGARVEAN COTTAGES VILLAS APARTMENTS TOWNHOUSES QUINTAS

HAPPY HOMES LDA. Rua Dr. Parreira 137 8800 - 346 Tavira Contact us today: 281 320 283 www.portugal-accommodation.com

REAL ESTATE LAND & HOUSES ALGARVE

GOLF PROPERTIES VILLAS APARTMENTS TOWNHOUSES PLOTS

If you are the owner of a good quality property and wish to sell, please contact us to arrange an appointment

TAVIRA 281 320 281 VILAMOURA 289 301 294 www.landandhousesalgarve.com AMI 6232

From property expert Robert Bijker, Happy Homes Algarve

After two years of uncertainty people fully embraced the freedom to travel in 2022. It’s been an excellent year for the hospitality sector. For most of our homeowners of self-catering accommodation in the Algarve rental income is at an all-time high and the year is not over yet! Every year in October/ November Happy Homes Algarve reflects on the past 12 months and the year ahead to fine tune our business, marketing strategy and to capitalize on trends in the market. One of these trends is the increasing demand for good quality long stay properties during the low season. These stays vary from 2 to 6 months and have the added benefit for home owners that the utilities are being paid for by the tenants. We are also witnessing strong demand for short stays in the 2023 summer season with some properties already being 90% booked. Currently, high inflation is an issue all over Europe, with Portugal it is no different. Homeowners are confronted with higher costs such as electricity and gas. Although energy prices in Portugal have increased, they are minor in comparison to prices in Northern Europe. Gas has risen in price more than electricity. According to Eurostat data, Portugal is one of Europe's least reliant countries on Russia for energy, accounting for 5% of its total needs. Most gas is being imported from Algeria and Nigeria. Renewables account for almost 30% of total energy consumption which is reflected in the benign 5% price increase of electricity. In some months of the year the electricity generation is 100% renewable, for example in May & June 2022 all electricity was generated from hydro energy. In summer there are days that solar energy contributes to 100% of the energy needs of the whole country. This explains why the price of

electricity has not gone up much and is a big compliment for Portugal´s efforts in the transition to renewable energy. Real estate is known to be a good hedge against inflation. Those who have a mortgage against their property will find that inflation erodes the value of the mortgage over the years. However, if you rent out your property for part of the year it is tempting to pass on some of the higher costs to the renters by increasing the rent. As most homeowners in Northern Europe are confronted by much higher price increases for energy, some are more eager than ever before to increase the rental rates of their property. Although this is understandable, it may not always be a good idea for various reasons. As head line inflation is 10% or more depending on their home country, some owners are considering to increase the rent by 10%. However the increased cost of letting only affects part of the cost, not the total rental value. The costs that have gone up are cleaning, laundry, electricity and gas. Only gas had a double digit price increase, the others are well below 10%. If we hypothetically assume these costs went up on average by 10%, this would not affect more than 30% of the rental income. As a consequence, if one were to contemplate increasing the rent, a 3–4% rise would be preferable to imposing one–to–one headline inflation of 10%+. Of course, there are factors besides inflation to take into account when deciding whether to raise or maintain rental prices. The increasing cost of airfares and airport taxes for your clients is one of them. Although people continue to fly, at some point their patience may run out due to record-high ticket prices. If the majority of your renters are Portuguese this will not affect them. If they are from abroad they are also faced with less purchasing power due to high inflation. In addition some of your renters may have a mortgage and could be vulnerable to higher interest rates. Again have a close look where the majority of your renters are coming from, as in some countries people prefer to have an adjustable floating rate mortgage (Portugal, England) versus others who prefer a fixed rate mortgage (Netherlands, Germany). The first will feel the pinch of higher rates while the latter are mostly unaffected. So if the disposable income of some of your renters is down by 20 – 35% it may not be a good time to increase the rent. However, there is more to it than that. Just like some industries or companies within an industry have more pricing power than others, the same may hold true for your property. It depends on a number of factors such as the current rental values, location, how much competition there is in your location and where your client base is coming from. Some of these you have control over, some you don’t. These are some things to consider when you contemplate increasing the rent. As an individual homeowner you may feel a bit lost, for us it is our daily business. Happy Homes Algarve is currently looking to add good quality rental villas, Quintas, village houses and apartments to their portfolio in the East Algarve to offer their clients in 2023. The property must have an AL license. There are accountancy and law firms who can assist you with obtaining the AL license and rental activity at a cost of Euro 450 – 700. In case you do not have a license we can assist you in securing one free of charge, so with Happy Homes Algarve as your property manager you hit the ground running. You have the additional benefit of direct access to our hands on experience build over the past 20 years.

Robert Bijker Director Happy Homes Algarve www.portugal-accommodation.com Rua Dr. José Pires Padinha 178 8800 - 346 Tavira Tel: 281 320 283 & 281 320 284 rentals@portugal-accommodation.com

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