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Portugal’s new SIGIs open door to pan-Iberian investment

4 MIN READMarch 11, 2019
Portugal’s new regime for real estate investment trusts (REITs) - known in Portugal as Sociedades de Investimento e Gestão Imobiliária (SIGIs) - is expected to herald a new wave of foreign investment in Portuguese real estate, accelerate development of the market’s residential rental sector, and open up pan-Iberian investment. Long in gestation, having been under consideration since 2015, Portuguese REITS - or SIGIs - became effective as of 1 February 2019. 

Hugo Santos Ferreira, executive vice-president of  Portugal’s association of real estate developers and investors - the Associação Portuguesa de Promotores e Investidores Imobiliários (APPII) - explains that APPII was the main body lobbying for the introduction of SIGIs in Portugal: “There are a lot of investors waiting to come into Portugal. But they will only invest in Portugal if we have the type of vehicles that they are used to, that they are comfortable with.”

Ferreira expects Spain’s top ten SOCIMIs to be amongst the first entities to invest in Portuguese SIGI vehicles, as well as large, global or pan-European funds, and maybe also some pension funds. “The approval of the Portuguese SIGIs was the signal they were waiting for, to come into Portugal,” he says.

Next step in attracting foreign investment

Portugal has already had considerable success in attracting foreign investment into its real estate market during its recovery from the financial crisis, and it continues to do so: according to preliminary APPII data for 2018, there was some €30bn of investment in Portuguese real estate during the year, of which c. €5bn comprised foreign investment. “More than 20%, maybe 25% of residential investment is made up by foreigners,” says Ferreira. “And if you go to commercial real estate, 85% of investors are foreigners. So we already have a lot of foreign investment.”

Fiscal and political incentives have played a large part in attracting that foreign investment into Portugal. In particular, the Golden Visa provides an opportunity for non-European residents to obtain a European residence permit by investing in Portuguese property, while non-habitual residency status (NHR) provides European residents, who take up fiscal residency in Portugal, with an exemption from income tax for ten years. Real estate adviser JLL estimates that the amount of investment coming into Portugal through the Golden Visa totalled €3.9bn from 2012 to Q1 2018 (90% into real estate), whilst the number of non-habitual residents present in Portugal totalled over 24,000, as of 2018.

For Ferreira, SIGIs follow on from Golden Visas and the NHR regime in Portugal’s work to incentivise and attract foreign investment: “We know that some of the big funds worldwide would not invest in Portugal because we did not have a REITS regime. I believe that this is going to be the next step.”

Pan-Iberian approach

SIGIs are designed to be listed companies focused on long-term investment in real estate properties, available for leasing or rental. Technically speaking, the main source of income of SIGIs - rental income - should be excluded from taxation, because while SIGIs are subject to corporate income tax in Portugal, they are excluded from taxation on three sources - rental income, capital gains and investment income. Distributions to non-resident investors are subject to a 10% withholding tax, while there is a 10% autonomous tax on capital gains derived from the sale of the shares in SIGIs.

Tiago Rosa, leader of EY’s Portuguese tax desk in New York, points out that these tax advantages are already available through Portugal’s existing, real estate-focused investment vehicles. Known as undertakings for collective investment (UCIs), they take the legal form of real estate investment funds or real estate investment companies. However, differences between SIGIs and existing UCIs include SIGIs’ mandatory focus on rental income and medium to longer term investments, their mandatory distribution to investors on a yearly basis, and the requirement that at least 20% of a SIGI’s share capital must be spread amongst shareholders owning a maximum of 2% of voting rights. These attractions, says Rosa, “should make it much easier to raise capital among investors.”

Essentially, Portugal appears to be going down the same route as Spain - its SIGIs are the Portuguese equivalent of Spain’s SOCIMIs - as Rosa explains: “In Spain, they had vehicles similar to Portugal’s existing real estate investment funds, but my understanding is that they didn’t have a lot of success. So they created the current SOCIMI regime, which led to a real boom in terms of attracting new foreign investment to the real estate market in Spain.” 

Could SIGIs have a similar impact in Portugal as SOCOMIs have had in Spain? Rosa believes so: “Absolutely. Spanish SOCIMIs are already considering investing in Portugal through this regime. Also, these new regimes may raise awareness amongst non-resident investors to consider Iberian investments, rather than just Portuguese or Spanish investments. This could open the door to significant joint investment across Iberia.” 

Opening up the rental market

The introduction of SIGIs coincides with a shortage in supply in Portugal of residential housing, which could potentially be filled through rental developments.

Paulo Loureiro, CEO of private equity investor and developer Louvre Capital, which has spent the last six years developing luxury apartments in and around Lisbon, sees residential developments targeting Portugal’s middle class as being the next  opportunity for his firm. Although the influx of foreign capital has helped in bringing about much-needed redevelopment of Lisbon’s city centre, Loureiro believes that the current opportunity is “to bring the people back to Lisbon - as simple as that.” 

And the new SIGI regime now provides Louvre with options on how best to approach its projects: “We might do both sale and rental, because now we have the legal structure in place to do buy to rent or build to rent. From a fiscal standpoint, it makes sense to do it; before that, we as investors had no incentive. Now we do.”

The real estate market and investment opportunities in Portugal will be discussed further at Portugal GRI 2019 on 21-22 May in Lisbon. 
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