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First, increasing affluence in northern Europe (the main source of customers for vacation accommodation in southern Portugal) will bring a steady rise in demand for this type of rental accommodation. Even though Europe's standard of living only rises 1%-2% per year, demand for travel products tends to rise faster than the average increase in wealth.
Second, compared to the south of Spain--or the south of France--southern Portugal is relatively under-developed as a tourist area/retirement center. This is not to say it is at all primitive. Tourism is the Algarve's major industry. The provin- ce's major city, Faro, is well-served by scheduled and chartered flights direct to all major European cities.
In addition, the cost of living in Portugal is very low com- pared to almost everywhere else in Europe, a further attraction for the vacationer (see below).
As overall travel demand rises, the current under-development of the Algarve region (compared to Spain and France) should result in above-average appreciation in Portuguese vacation pro- perty values.
In
The second type of income is, of course, rental revenues. most places, net property rental income runs around 5%-7% per annum, as a return on investment. This is the kind of return you should expect on an apartment in Lisbon which is being rented year-round to one tenant.
A well-located vacation property can achieve a higher return: in the region of 78-10% per annum. The reason is simple: you normally expect to rent a property for the full term of two or three year lease. It may be vacant for a few weeks at the end of the lease if a new tenant must be found.
The risk of vacancy is higher with vacation property: it's normally let for a week or a month at a time. Because of this inherent risk of possible income loss if tenants cannot be found on a regular basis, the return on vacation rental property should be a little higher than the return on other properties. This is certainly the case of property in the Algarve.
If you have chosen a property in the correct location that can command premium rentals during the extended "peak" season-- sunseekers and golfers--it should also achieve reasonable rates of occupancy during the off months of the year, albeit at lower
rentals.
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