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18 May 2024

No respite from slump even in sunny Madeira

By Graham Norwood

Britain's housing minister, Margaret Beckett, was on holiday last week. But if she looked around she would have had no respite from the property slump.

She was staying at Reid's Palace, a handsome – not to say expensive – hotel on the Atlantic island of Madeira. This location is part of Portugal, is affluent and a long-standing holiday home favourite for older Britons and Germans.

Its residents are comfortably off. Unemployment is only 5.5 per cent whereas on the Portuguese mainland, 600 miles north, it is 50 per cent higher.

Madeiran taxis are smart Mercedes, there are good restaurants and waterside bars, the locals are fashionably dressed and know how to party in carnival week. Farmers have a tougher time, using traditional tools to tend hillside plots on this mountainous island; but they export heavily and have good incomes compared to counterparts in many other areas of the world. Yet the property slump is still in evidence.

Across the road from Reid's, Beckett could see that one of the island's most upmarket estate agency offices was empty. Elsewhere on Madeira, "For Sale" signs look weather-beaten after a year or more with sellers not finding buyers. On nearby Porto Santo, where Madeirans themselves holiday because of its sumptuous beaches, the construction of the large Colombo's Resort of timeshare residences, hotels and apartments has stalled because its main investor has pulled out.

In other words, Madeira's problems are similar to those of the rest of the world. But while it suffers the same funding difficulties – many locals find it hard to obtain loans from newly-restrictive banks – it also has an additional threat to its prosperity.

There is a worry that the aggressive pursuit of "environmental purity" by countries attempting to price people away from taking holiday flights will damage the island's principal income – tourism.

The island currently has about 330 hotels recording around 60 per cent average occupancy.

It has a strong reliance on cruise ship tourism (at Christmas and New Year there are 12 liners wedged into the modest harbour at the island's capital, Funchal). But in recent years it has relied increasingly on air tourism; the island is under four hours from northern Europe and less from Portugal's mainland, while Funchal airport has twice lengthened its runway to make it safer to accommodate larger aircraft.

The airlines have responded as a result – there are now daily flights from some British provincial airports as well as from London, for example, and similar expansions have taken place in Germany and Scandinavia, two regions whose residents have long enjoyed holidays on Madeira.

And the end result of all this has been what?

Well, the property market has boomed modestly thanks to more foreign-owned holiday homes. But perhaps more importantly the general Madeiran economy has expanded. What is more, the island's rulers have handled all this very well.

They have been restrained with development control, insisting new hotels are four- and five-star and nothing less; they have allowed new apartment complexes but no high rise schemes. Most development is on hills around Funchal, which has 50 per cent of Madeira's population and thereby allows the rest of the island to remain unspoilt.

So having reached this admirable stage of controlled development, improved tourism and enhanced infrastructure, what happens if the air traffic falls sharply as environmental campaigners want?

In short, the island will suffer and the heightened prosperity brought by tourists who buy homes or occupy hotels will end. Madeira may be forced to return to being a poorer place as
a result. This will be of little importance to campaigners in countries which are already affluent but it will be crucially important to, say, those thousands of young Madeirans who have chosen to stay on the island and pursue a career in tourism.

Which brings us back to the British housing minister, Margaret Beckett.

When she ventured outside of Reid's Palace she will have seen an island suffering the short term travails of a global recession but faced by a bigger, less publicised threat – environmental short-termism.

Governments that combat climate control by preventing people travelling rather than, say, obliging aircraft and car manufacturers to reduce their products' emissions are hurting real people, while allowing corporations to wriggle off the hook.

Such short-termism damages the property industry but more importantly it damages the aspirations of ordinary people who want to visit or live in places around the world but may find themselves priced out of doing so.

Is that what governments should be doing? I think not. Mrs Beckett, I hope you looked around you when you were on Madeira.

- The writer is a property correspondent with the Observer