GRIPortugal continues to attract strong foreign interest
GRI Club Portugal discussed Portugal’s investment cycle, its strong fundamentals, and new opportunities like BTR.
February 25, 2019Real Estate
GRI Club Portugal met for its inaugural club meeting at the Embassy of Portugal in London on 20 February, in order to discuss Portugal’s investment cycle. On the back of Portugal’s strong fundamentals, which continues to attract strong foreign interest, participants considered the case for investment opportunities based on supply and demand imbalances in emerging asset classes, such as residential rental developments and build-to-rent (BTR), and in cities beyond Lisbon.
Strong fundamentals and 2019 trends
A presentation from Fernando Ferreira of JLL set the discussion rolling, starting out with the quality of life and the mild climate which attracts people to Portugal. In the last six years or so, Portugal has witnessed a remarkable rise in real estate investment activity: although the cycle must end at some point, Portugal’s fundamentals are considered strong enough now to avoid an impact like in the past, when Portugal had to be bailed out by the EC/ECB/IMF troika. Significant trends include: huge demand for offices, with large-scale greenfield projects expected to happen in 2019; co-living and co-working being active sub-sectors; banks continuing to offload large portfolios of non-performing loans, similar in size to 2018; and the establishment of a REIT market in Portugal.
Hot market
GRI members discussed pricing levels of residential property in Lisbon, as well as the difficulty of finding properties to rent. The idea of a bubble was dismissed as something that was being talked about two years ago: it was noted that top prices had been slowing down in 2019, with some general stabilisation in prices for old property, and growth in prices for new. The impact of construction costs was considered, and it was observed that compared to three years ago, anyone buying and developing a building had to be more cautious now about construction cost inflation.
External vs domestic perceptions
Some concern was raised that local Portuguese people had been priced out of their own market. It was pointed out, however, that they had never wanted to buy in the places that had attracted foreign investment - such as downtown Lisbon and in places like Cascais. Examples discussed included the purchasing by French people of properties in Seixal and any other properties around Lisbon with river views; the long-standing interest of British purchasers in Portugal was also mentioned, with plenty of pent-up demand being created by Brexit uncertainties. It was agreed that sometimes it takes an external force to change domestic perceptions. Furthermore, some greenfield projects are being aimed at the domestic market.
Rental boom expected
The case for residential rental properties was closely considered, both in terms of PRS and build-to-rent (BTR), given the lack of rental supply: factors include the legal position of tenants, issues of liquidity, achievable yields, and the strength or otherwise of the existing rental market. Participants are contemplating where it can work, and whether the investment numbers stack up. In the right locations outside the city centres, it seems, is where BTR may be starting to make sense, with suggestions that 4% yields are achievable; in fact, a boom may be expected in the next two to three years.
Not just Lisbon, but cities across Portugal
The discussion did not just focus on Lisbon, or indeed Porto. Given the fact that the fundamentals of Portugal are changing and stronger, participants noted that there are opportunities and a lack of supply in cities like Coimbra, Aveiro, Almada and across the country.
The real estate market and investment opportunities in Portugal will be discussed further at Portugal GRI 2019 on 21-22 May in Lisbon.
Strong fundamentals and 2019 trends
A presentation from Fernando Ferreira of JLL set the discussion rolling, starting out with the quality of life and the mild climate which attracts people to Portugal. In the last six years or so, Portugal has witnessed a remarkable rise in real estate investment activity: although the cycle must end at some point, Portugal’s fundamentals are considered strong enough now to avoid an impact like in the past, when Portugal had to be bailed out by the EC/ECB/IMF troika. Significant trends include: huge demand for offices, with large-scale greenfield projects expected to happen in 2019; co-living and co-working being active sub-sectors; banks continuing to offload large portfolios of non-performing loans, similar in size to 2018; and the establishment of a REIT market in Portugal.
Hot market
GRI members discussed pricing levels of residential property in Lisbon, as well as the difficulty of finding properties to rent. The idea of a bubble was dismissed as something that was being talked about two years ago: it was noted that top prices had been slowing down in 2019, with some general stabilisation in prices for old property, and growth in prices for new. The impact of construction costs was considered, and it was observed that compared to three years ago, anyone buying and developing a building had to be more cautious now about construction cost inflation.
External vs domestic perceptions
Some concern was raised that local Portuguese people had been priced out of their own market. It was pointed out, however, that they had never wanted to buy in the places that had attracted foreign investment - such as downtown Lisbon and in places like Cascais. Examples discussed included the purchasing by French people of properties in Seixal and any other properties around Lisbon with river views; the long-standing interest of British purchasers in Portugal was also mentioned, with plenty of pent-up demand being created by Brexit uncertainties. It was agreed that sometimes it takes an external force to change domestic perceptions. Furthermore, some greenfield projects are being aimed at the domestic market.
Rental boom expected
The case for residential rental properties was closely considered, both in terms of PRS and build-to-rent (BTR), given the lack of rental supply: factors include the legal position of tenants, issues of liquidity, achievable yields, and the strength or otherwise of the existing rental market. Participants are contemplating where it can work, and whether the investment numbers stack up. In the right locations outside the city centres, it seems, is where BTR may be starting to make sense, with suggestions that 4% yields are achievable; in fact, a boom may be expected in the next two to three years.
Not just Lisbon, but cities across Portugal
The discussion did not just focus on Lisbon, or indeed Porto. Given the fact that the fundamentals of Portugal are changing and stronger, participants noted that there are opportunities and a lack of supply in cities like Coimbra, Aveiro, Almada and across the country.
The real estate market and investment opportunities in Portugal will be discussed further at Portugal GRI 2019 on 21-22 May in Lisbon.
