Chambers Practice Area Overview 2020 – Real Estate (Portugal)
With strong economic growth, the rest of the world is looking at Portugal as the place to be, with a particular focus on its cities of Lisbon and Porto, which continuously win prize after prize as top world travel destinations. As a result, there is no doubt that this favourable situation has drawn the attention of investors who once left Portugal off the map, but, for the last two to three years, have been battling to get their cut of the best deals that the Portuguese market offers.
As one of the main driving motors of the economy, Portugal’s real estate and leisure markets continue to boom and follow a very positive cycle. The volume of investment has not stopped growing in the last five years. It exceeded all expectations in 2019 and it is projected to break new investment records in 2020.
This is obviously good news, particularly for real estate lawyers who are seeing unparalleled demand for legal assistance. And obviously, law firms are doing very well, especially real estate firms, which have never been busier. Generally speaking, all managing partners from the top Portuguese law firms point to real estate as one of the best performing practice areas over the last year and is expected that 2020 will again reflect this positive outcome and contribution to the firms’ results.
Brokers and international real estate consultants are overflowing with requests for market opportunities and have become quite selective in their response to potential clients looking for new deals. Contractors are struggling with a shortage of resources to accommodate the unprecedented level of demand for new construction works, with hundreds of new buildings being built or fully refurbished, and this has led to a rise in the price of construction. Lastly, the funds and the major banks are also quite open to financing real estate transactions and projects. However, they are cautious as they are conscious of the last remains of the NPLs and disrupted real estate assets that some of them have still in their portfolios for sale.
Looking at 2020, the new year will no doubt once again be boosted by an upswing in activity and unparalleled domestic and international demand for all types of real estate assets, even if we are witnessing some stabilisation in the yields. This activity ranges from new residences to offices; from new hotels under construction to multiple ongoing projects to build new student housing and senior accommodation; from logistics to major refurbishment of shopping centres and retail stores to adapt them to a world where online sales are gaining more and more ground; and lastly, a growing demand for new building concepts, for co-working and co-living that is a clear trend among millennials.
2020 will also be the year of some legislative changes. After years of pressure on the real estate market, with prices escalating and reaching very high levels, the Portuguese government has taken action on the severe shortage of properties at affordable prices, whether for sale or lease. The state of the market has particularly affected Portuguese companies and people, who are still the main players in the Portuguese real estate market, either as promoters and developers or as purchasers and sellers of real estate assets. This situation has raised concerns and called for political intervention to put some balance into the market, mainly to put a hold on those areas that were out of control as a result of massive tourism pressure or to prevent foreign individual investors with a greater economic capability from buying properties at the highest prices.
After some years of reaping the benefits of this market boom, the whole situation has now led the Portuguese government to make some changes to the laws and regulations that had previously been designed to attract international investors successfully. The legal mechanism and tax schemes implemented five to ten years ago proved the merits of the legislation beyond doubt. However, in 2020 the rules and regulations are now being redesigned to rebalance the benefits and reduce the attractiveness in order to redirect investment to other regions or to different investor profiles.
Other new laws and investment mechanisms were also adopted last year. These include the Portuguese REITs (in Portuguese, SIGIs), which are intended to incentivise investors to put their money into rental properties. They are expected to produce results in 2020 and to attract major international investors, in particular, major players with the capacity to buy big ticket properties, not only in Lisbon and Porto, but also in new targets, such as the trendy seaside area of Comporta and the south bank of the river in Lisbon South Bank. For years now, these areas have been singled out as targets that require large scale real estate investments.
The market is currently driven by those with financial capacity, with no room for those with a shortage of financial resources to pay big and pay fast. The players who, in previous years, were only actively operating to speculate with third parties’ time and money, are progressively disappearing and being put aside for those with real capacity to close and secure deals and projects.
To conclude, traditional investors are everywhere in Portugal and they are here to stay and structure the best deals and market opportunities. Insurance companies, family offices, investment funds, banks, international developers and domestic promoters, still compete fiercely for their stake in the Portuguese market. All of them want a bite of the major investment opportunities that are still available in the Portuguese market, a market that has undoubtedly become more mature and selective, with fewer and fewer bargains or small deals.
This is all good news for real estate law firms, especially for the ones that have the means and capacity to handle multiple deals at the same time, and the size and resources required to efficiently implement and execute the major projects and massive deals that are expected to be closed throughout 2020.
By Tiago Mendonça de Castro and Sofia Gomes da Costa