What happens to property values if Portugal exit the euro?

[widge]

OK you finance gurus, as the likelihood of Portugal having to exit the euro and reinstate the Escudo at a significant devaluation, what happens to the property market in the Algarve?

[EMM]

Initially property values in Escudos will plummet as the Escudo will be worth much less than the Euro.
Eventually as property in Escudos will be more attractive to buyers with Euros or Sterling demand will rise and property will regain some of its lost value,

But there is less thana 50/50 risk of Portugal leaving the Euro although some realignment of the realtionship between the strong Euro countries and the weaker ones is enivitable.

[sunman]

OK you finance gurus, as the likelihood of Portugal having to exit the euro and reinstate the Escudo at a significant devaluation, what happens to the property market in the Algarve?

lol widge, if only putting the pieces of the jigsaw together were that easy, we'd all know whether to buy 3 apartments or run for the hills

there is precedent for all this; I lived in Japan in the late 80's; the stockmarket got to 39,000, rent on my 2 bedroom Tokyo apartment was $6,500 per month, the grounds of the Imperial Palace were worth more than the whole of Manhattan Island and the Yen/ £ exchange rate was about 250
then they had an economic crash, much like our own led by the banks
Today; the stock market stands at around 10,000 (-75%), rent on the very same apartment is $2,5000, Tokyo real estate is down about 80% in general, they've had 0% interest rates for 20 years, economic growth is at zero or slightly negative year on year and the price of beer is the same as I paid 20 years ago. But the yen/ £ rate has fallen to around 140. When you take Western inflation over the same period you could say that net net there's been massive deflation.

So, for the domestic Japanese, there's been negative wage growth, offset by falling prices, no rate of return on their money, but houses are now affordable.

In this example the big variable for international visitors or importers has been the currency swing. I visited last year for the first time in ages and despite all the prices falling I found things expensive, simply because sterling has fallen 40% or so.

IF and when the escudo/ lira/ peseta/ dracma all come back there'll need to be a period of transition where Euro holders can select which currency they exchange into. Domestic residents will have to convert to their local currency as the banks revert to their sovereign denomination but internationals will have the choice to convert to whatever.

Economic growth looks bleak here for the foreseeable and credit will remain very tight which is gloomy for house prices amongst all else, BUT any fall in currency will make things here look relatively cheap, it's just a question of when to make one's move.

sorry to bang on but when you consider that UK rates look like they'll be low for longer and Euro rates are on the up then I think the £ is holding up very well, austerity cuts in UK unlike here, Italy & Greece look achievable so at the moment I think there's a case for switching out of €'s into the £, unless you think € rates might end up at 5% or something.

[widge]

Thanks for your views/ advice. I worry for the future, it's difficult to predict what it might hold.

[pato]

Economic growth looks bleak here for the foreseeable and credit will remain very tight which is gloomy for house prices amongst all else, BUT any fall in currency will make things here look relatively cheap, it's just a question of when to make one's move.

Am I wrong but doesn't that situation increase prices as it has here in the UK?

[sunman]

Economic growth looks bleak here for the foreseeable and credit will remain very tight which is gloomy for house prices amongst all else, BUT any fall in currency will make things here look relatively cheap, it's just a question of when to make one's move.

Am I wrong but doesn't that situation increase prices as it has here in the UK?

my take on the UK market was that London prices are up because Chinese, Russians and Arabs are getting money out of their unstable countries & investing in a stable one? and that outside London prices are on the slide due to difficulties in raising enough money for a deposit to get a mortgage?

I know there's a few Scandanavians buying here because their currencies have been very strong against the Euro but turnover is very light, there are hundreds and hundreds of mainly overpriced properties up for sale and expats are leaving in their droves as it becomes more difficult to eek out a living, this points (I think) to lower prices

[Bruce Wallis]

We always went into this for the long term.......so luckily we dont need to worry unduelly about the state of the local property market.

[widge]

We always went into this for the long term.......so luckily we dont need to worry unduelly about the state of the local property market.

I think you miss the point Bruce. If your Portuguese home is eventually priced in escudo's and they are only valued at a fraction of a euro then there's nothing unlucky or short term about it, you've lost a shed load of money. It's got nothing to do with the state of the local property market it's all about the state of the Portuguese economy & it's ability to pay down debt.

[cereza]

We always went into this for the long term.......so luckily we dont need to worry unduelly about the state of the local property market.

I think you miss the point Bruce. If your Portuguese home is eventually priced in escudo's and they are only valued at a fraction of a euro then there's nothing unlucky or short term about it, you've lost a shed load of money. It's got nothing to do with the state of the local property market it's all about the state of the Portuguese economy & it's ability to pay down debt.

widge - I think you are worrying too much ! If Portugal did revert to the Escudo then any sellers would just convert their sales price at the new exchange rate - any buyers would just do the same to their budget price - in theory it should not make any difference. The potential problem is one of confidence on the buyers part in buying into such a market but that is the problem now anyway so overall I just don't see what big difference it would make initially. The possibility of further declines in the property market would then depend on how successful the Portuguese economy develops under the new currency.

[widge]

We always went into this for the long term.......so luckily we dont need to worry unduelly about the state of the local property market.

I think you miss the point Bruce. If your Portuguese home is eventually priced in escudo's and they are only valued at a fraction of a euro then there's nothing unlucky or short term about it, you've lost a shed load of money. It's got nothing to do with the state of the local property market it's all about the state of the Portuguese economy & it's ability to pay down debt.

widge - I think you are worrying too much ! If Portugal did revert to the Escudo then any sellers would just convert their sales price at the new exchange rate - any buyers would just do the same to their budget price - in theory it should not make any difference. The potential problem is one of confidence on the buyers part in buying into such a market but that is the problem now anyway so overall I just don't see what big difference it would make initially. The possibility of further declines in the property market would then depend on how successful the Portuguese economy develops under the new currency.

An interesting theory cereza. So as I bought my villa when the pound bought one and a half euros and it now only buys one euro I should adjust my selling price to reflect the new exchange rate? The assumption being that buyers and sellers from the UK price everything in sterling without regard for the price in euro's whilst the Germans price everything in euro's with no regard for sterling!

This theory may well work for the current market ( reducing the asking price by a third might create a competitive price) but if the escudo devalues against the euro by 40 per cent then my price has to go up !

[laserblazer]

but if the escudo devalues against the euro by 40 per cent then my price has to go up !

Assuming you can find someone with cash, who will pay the price.

[cereza]

widge - I think you are worrying too much ! If Portugal did revert to the Escudo then any sellers would just convert their sales price at the new exchange rate - any buyers would just do the same to their budget price - in theory it should not make any difference. The potential problem is one of confidence on the buyers part in buying into such a market but that is the problem now anyway so overall I just don't see what big difference it would make initially. The possibility of further declines in the property market would then depend on how successful the Portuguese economy develops under the new currency.

An interesting theory cereza. So as I bought my villa when the pound bought one and a half euros and it now only buys one euro I should adjust my selling price to reflect the new exchange rate? The assumption being that buyers and sellers from the UK price everything in sterling without regard for the price in euro's whilst the Germans price everything in euro's with no regard for sterling!

This theory may well work for the current market ( reducing the asking price by a third might create a competitive price) but if the escudo devalues against the euro by 40 per cent then my price has to go up !

Widge - I have just pointed out what the technical position would be but everyone has to look at their own situation. Effectively you bought your villa in sterling ( you bought the euros at 1-5 to the £) if you want to sell now you could afford to sell even at a loss on the euro price but make up the loss on the currency by selling the euros received at 1-13 to the pound so you pricing is based on sterling values. If, on the other hand, you or a German had funded the original purchase by means of say a euro mortgage then you are stuck in euros and are looking at a straight loss now because the local market is quoted in euros and has dropped - the pricing is based in Euros.
Everybody has to make their own decision at what price they want to sell or buy because of their own situation and from this a market forms at whatever level in the local currency. If that local currency should change say from euros to escudos then the initial reaction is to convert the price at the exchange rate between the old and new currency. Once that change has been made then the new currency (escudos) may fall or rise and as it does the market will adjust accordingly.

Theoretically if the re-introduced escudo should subsequently fall 40% in value against sterling then you must decide whether to increase your price in escudos by 40% to maintain your sterling value. However if buyers don't increase their prices by 40% you won't sell. On the other hand any properties priced in escudos and not increased in price by 40% will look very cheap in sterling terms and hopefully attract buyers - this is what has happened in central London with foreigners buying up what they regard as cheap property because their currency is strong against the weakness of sterling.

This is the theory but of course the market is affected by many other factors such as confidence or a lack of mortgages or whatever -it will find its own level and each individual must make their own pricing decisions. You can adjust your price as you please but if you want to sell in the current market you have to dance to the buyers tune regretfully

[Somabonus]

Does anyone considered the implementation of the new world order and it´s new currency ( Medvedev got reprimanded when he publicly have shown a sample of the new coin last year ) which will kill all other currencies? Will this be for the next couple of years? As far as the things are I can not see any recover from any of the European countries or the US, so, the best is to create value to our properties as they are, installing solar panels for producing electricity, developing small biologic farming projects, use pieces of the property to make storage warehouses ( if possible, depending on where they are ).

Anyone have listened to Gerald Celente recently? Somebody have mentioned George Soros in this forum somewhere, do you know why is George Soros selling all the gold he bought in the past years and he is now buying rough land? Is anyone aware of the trouble with the main food suppliers ( USA, CHINA, AUSTRALIA and so on ) for the nest year´s food chain distribution? All because of the weather changing and and the natural disasters occuring everywhere, are we prepared to get the daily food amounts when and if it occurs next year as they say?

I guess we have enough topics for discussion, I just am not sure about when exactly austerity is going to press down even more, it is not too far I am afraid.

Maybe the real problem is not the exit of the euro zone or the drop of 30% or more in property prices, what do you think about it seriously?