I’ve traveled widely throughout the Iberian Peninsula and stood watching the wild Atlantic crash on the shores of Portugal and the Mediterranean Sea lapping long beaches to the south of Spain.
From a traveler’s point of view, this whole Peninsula—with its Moorish and Basque influences—is charming and intriguing. This is where you’ll find some of Europe’s best weather…as well as good food, good wine, and dramatic landscapes.
But from a real estate investor’s perspective, the story of this Peninsula in the past decade is even more compelling.
In the past three years, I’ve uncovered more opportunity here than anywhere else in Europe. For almost a decade, I kept a close eye on the real estate markets in Spain and Portugal. I knew opportunity was coming…and I was biding my time until the time was right to strike.
When the financial crisis hit Europe, Spain and Portugal were among the worst affected countries—only Ireland and Greece were as badly affected. It was little surprise to anyone paying attention to the markets before the crash. A perfect storm of events left both reeling.
The Spain and Portugal of the boom years were completely unlike the ones I remembered from my childhood. If you had have told a lot of people then that Spain or Portugal (or Ireland for that matter) would be big players in Europe, they’d have scoffed. Portugal was known mostly for its textile and fishing industries and some tourism beyond that. Spain, though more prosperous, had massive unemployment and poor infrastructure.
For decades until the 1980s, Spain and Portugal had been among Europe’s poorest and most fragile economies. Then, both countries joined the European Economic Community (later the European Union) in 1986. It was the catalyst for major growth in Spain and Portugal. When the euro was introduced in 1999, Portugal was one of the first adopters; Spain followed suit in 2002.
After the adoption of the euro, things seemed to be moving in the right direction for Spain and Portugal. Unemployment dropped. Industry—especially in the tourism sector—increased. And construction, especially in Spain, boomed.
But just like in the U.S. and many parts of Europe, a lot of the new construction and development was fueled by cheap credit. It was unsustainable. And, as the economies grew, so did things like labor costs. Portugal, in particular, lost the competitive edge it once had of low-cost labor.
The boom couldn’t last. When each country’s economies inevitably crashed, they crashed spectacularly. Banks failed and were taken over by ”bad banks.” Development and credit ground to a halt.
But where there’s crisis, there’s opportunity for real estate investors.
In both countries, the bad banks started selling off properties fire-sale. They wanted to get that real estate off their books so that recovery could start. Often, they priced property at well below its real market value—sometimes through wanting to make a quick sale. Other times, they simply didn’t realize the true value of what they were selling off.
Distressed developers and home owners also created opportunity. Those struggling with debt were willing to make a quick sale under value just to keep their heads above water.
That’s not to say I recommended a lot of properties. Just because something has a low sticker price doesn’t mean it’s a buy. I’ve concentrated my recommendations on areas in Portugal and Spain that are set to rise in value—mostly in tourism-heavy regions that are recovering better from the crisis than other parts of either country.
The window of opportunity is starting to close on Spain now—though there are still pockets of opportunity left to take advantage of.
And I’m keeping a close eye on Portugal’s Algarve region. I’ve found some strong deals there so far…and I’m working on uncovering more.
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