CHAMBERS REAL ESTATE OVERVIEW 2021
Early last year, any outlook on the Portuguese real estate market would forecast a great year for the industry, as all indicators were favourable to the continuing growth we have been witnessing the past few years.
It goes without saying that the COVID-19 pandemic had an huge impact in the Portuguese economy leading to a contraction, which is easily explained by the Portuguese economy’s dependence on tourism, even though the recession has not reached the worst forecasts presented by the principal national and international entities.
Despite all adversities, in 2020, commercial real estate investment reached its third highest turnover recorded and has proven its resilience.
There is no doubt that this crisis has significantly changed our work habits and the workplace itself, highlighting the trend for hybrid working models affecting both residential and office spaces, but it has also contributed to an increase in the use of technology and digitalization, including in the real estate sector, by using applications that allow professionals to keep their usual work avoiding, to the extent possible, social contact and granting the public entities the relevant tools to simplify procedures and avoid bureaucracy.
During 2021, uncertainty will still be hanging in the air and confidence of customers and investors will probably not return overnight, but there are positive signs to be considered, as a vaccination plan is currently in progress, which is expected to control the pandemic, and there is still great expectations for the European Union’s "bazooka" which will help finance the Portuguese recovery.
Within the real estate market, projections for this year differ from each segment. A significant investment volume is expected, as there are still low interest rates and great liquidity is available worldwide to invest in the real estate sector, specifically in logistics, housing and core office assets, as well as in the new alternative schemes (co-livings, flexible offices, student and senior accommodation as well as multifamily developments). Even if due to different reasons, and in certain cases one may see a drop in occupancy in the segments that are more dependent on the foreign market, the demand for these products remains high and the key factors that have contributed to put Portugal in the spotlight for foreign investment remain quite the same.
On the other hand, the hotel and retail sectors, including high-street retail and shopping centres, will continue to struggle due to the continuing lockdowns and recovery may take more time than expected. This said, as Portugal features all the requisites to keep standing out as a prime tourist destination. confidence and hope in the day after is making investors keep an eye on the hotels and tourism sectors during 2021 and those sectors are expected to replace the investment volume traditionally channelled to the retail sector.
From a political perspective, governments all around the world decided on exceptional and urgent measures, balancing between a drastic public health situation imperilling the lives of all citizens and a growing concern regarding an imminent global recession.
The Portuguese Government was no exception and alongside with the mandatory lockdown has enacted a set of exceptional measures to face the crisis arising therefrom. For instance, bank moratoriums have been granted to individuals and corporate entities in respect of their current financing (which are currently in place until September 2021), which have been pivotal for keeping them afloat and preventing them from sinking in credit debt. Nonetheless, the expiry of the existing credit moratoriums will probably entail an increase of bank exposure to non-performing loans and, in such case, credit portfolios will be put on the market for sale.
The exceptional frameworks that have impacted the real estate sector the most are related to lease agreements, notably the approval of (i) an exceptional regime for rental payments arrears, with specific rules regarding residential and non-residential lease agreements, (ii) an interest-free line of credit was also opened for residential tenants, (iii) the suspension of termination notices served by landlords during this period and (iv) the waiver of the payment of minimum rents due under contracts for the use of shops in shopping centres.
Considering that the beginning of 2021 has been marked by a new and extended lockdown, it is expected that said exceptional measures are reinforced and their term extended throughout this year.
In relation to foreign investment, the Portuguese government has continued the same route followed in the past recent years and introduced new limitations to the existing golden visa legal framework, notably by excluding residential investment in the Lisbon and Oporto areas from the investment requirements and by raising some of the investment thresholds. Such limitations are due to come into force in the beginning of 2022. Considering the challenges that the Portuguese economy will face and the fact this program is usually recognised for its key role in securing a sustainable demand for housing products, developers have raised their concerns regarding these legislative changes.
As mentioned above, the pandemic called for the urgency of the digitalization of many services. In the context of the pandemic scenario, the Portuguese government approved an innovative legal framework, which is still pending to be formally enacted, establishing a "test drive" regime for the remote execution of notarial acts. This new regime has not yet come into force but is expected to enable the possibility of certain notarial acts being performed remotely (with no need of the relevant signatories being present at the notary), including the execution of sale and purchase public deeds of real estate properties, as well as the creation of other in rem rights or securities.
In a nutshell, the Portuguese economy will certainly face difficulties and it will take time to fully recover, as such recovery will be depending on several factors but essentially from the European recovery package. Nonetheless, as it happened in the last crisis, we have no doubt that the Portuguese real estate market will play a significant role in such process.
By João Torroaes Valente, Andreia Bento Simões e João Fitas