PORTUGAL: An Introduction to Planning

The following Overview featured in Chambers Europe 2023 and is awaiting update from the firm.

Planning Law and the Real Estate Market in Portugal in 2023: New Year, New Opportunities

Uncertain times in the Portuguese real estate market

Despite sitting on the very edge of Europe, Portugal has entered 2023 anticipating the escalation of the difficulties that were already being sensed throughout the continent in the last quarter of 2022: the ongoing war in Ukraine has brought generalised inflation, increased the price of the construction materials and, consequently, diminished the consumption capacity of both households and companies. All this will have a direct effect on the performance of the real estate market during next year and require solutions in the form of laws and policies, including Portuguese planning law.

The geographical position of Portugal with its west and south ocean boarders, Europe’s best moderate climate, the unshakable demand for luxury real estate and the consolidation and expansion of the booming tourism sector could be enough to male one consider the Portuguese economy bulletproof, but the secondary effects of the crisis on Portuguese citizens, namely the erosion of purchasing power and the rising costs of housing and goods, are sending tremors through regular investors in the economy. Caution given this scenario is perfectly understandable. This is augmented by available resources being almost entirely consumed by the extensive government spending programme resulting from the so-called European Bazooka.

Nevertheless, feelings of distress do not inexorably lead to a sharp downturn: instead, distress often leads to outstanding opportunities, which will be grabbed by those with a sharp eye and the ability to innovate. In troubled times, innovation is the key to successful moves and it is also where the legal sector plays a leading role.

The role and effect of planning law 

Law is unable to contain the course of life, but it is supposed to (and may very well) shape it. Planning law has always had a loud say in the dynamics of the real estate market – not only by determining the best way to make the most out of every square meter, but also by considering all the variables that need to be protected (cultural heritage, environmental aspects, agricultural soil, etc).

The anticipation of deflation in 2023 makes it an extremely important year for decision-makers to actually make decisions in this area. The planning instruments need to be swiftly (and cleverly) adapted to the desires of those who really only need to be told what to expect when they dare to invest in the Portuguese real estate market.

It is therefore vital that 2023 be the year of clarity regarding planning law. Real estate investors are already bound by so many uncertain variables that the very least that can be asked is that the public sector lets them know what and where they can build; which is the optimal balance between environmental constraints and construction capacity; which usages are to be targeted in each location; how long will the licensing procedure take and how much will it cost. Indeed, when the economy is volatile the way to allow the players to make it through is to create “safe harbours”. This is what the planning instruments are meant for and this is the right time to turn them in to accurate, positive real estate market regulators.

Because, in the end, the uncertainty is the opposite of a good investing environment. And certainty – not only, but particularly in planning law – shall lead to timely and better decisions and to more effective accountability between the involved public and private entities.

When it comes to deciding whether to make a bet in the real estate sector, fortune is said to favour the bold and a shaky global context should not draw attention away from a privileged location such as Portugal. Nevertheless, it would be reckless to totally dismiss such widespread malaise. It is then for the legal planning instruments, both national and local, to establish the confidence that will appease the concerns of the innovative souls who are truly capable of making 2023 into another glowing year for the Portuguese real estate sector.

Because, in 2023 Portugal has everything required to continue to be a real estate hot spot, where difficulties can turn into opportunities once the right idea, the right project, and imagination and innovation are put in place. Regulators must create and provide tailored solutions to the current social and economic scenario – and planning law has a long way to go in this regard.

The clear lack of housing for families and students has been a trigger for the expansion of city centres, for the creation of residential hubs for students outside the main cities and for the development of mobility solutions that will surely bring the interior and the coastal areas closer together.

In addition, environmental concerns are already being taken into consideration in the creative process of every planning project as a way of adding value to the development (and no longer as a limitation) and public entities are now more prepared to address such concerns through the standard administrative procedure of an environmental impact assessment.

In addition, and contrary to what the pandemic may have led some to believe, the demand for better locations for wider office spaces has not ceased to increase.

The combination of Portugal’s very attractive features and these secure and innovative opportunities makes us believe that 2023 may well be a challenging year, but not one that will pose an insurmountable challenge. Portugal is still very far away from fulfilling its huge potential. Modest expectations, built at the end of 2022, will most certainly turn into great achievements in 2023. New year, new opportunities.