IP03

2017 / iberian.propery // 41

ISSUE: TOP IBERIAN cities //dossier

The biggest challenge facing Lisbon as a destination for

real estate investment has to do not necessarilywith Lisbon,

but with the size of Portugal in the context of Europe. Por-

tugal is a small countrywith a small economy, and decision

makers across the most important European capitals will

tend to allocate the biggest portions of their real estate

investment budgets to countries / cities / markets that are

significantly bigger.

This can be a

“catch 22”

situation, whereby investors choose

other locations because Portugal is a small market. This

has a self-replicating effect over time, increasing the gap

between the Portuguese market and the other main Eu-

ropean markets.

The second factor is the stability of the economic and fi-

nancial situation. A more stable economic performance

would certainly help attract more investment; conversely,

the fact that the country was just recently bailed out by the

international community leaves investors concerned about

country-specific risk.

Other important factors, but not of the same magnitude as

the two above mentioned, are (i) the strength of the bank-

ing system, (ii) the stability of tax rules, (iii) the operation of

courts of law and (iv) the planning permission system for

refurbishments and new developments.

The banking system has been undergoing massive changes

and taxpayers have been called to bail out a big portion of

the most important banks. Real estate investment is fuelled

by debt, and without strong banks it is hard to generate

investment deals.

Investors feel very uncomfortable if the tax framework is not

stable, which unfortunately can be the case in Portugal. The

reverse effect is also true, as has been the case for example

of the enormous boom in the residential market after the

change in the rules for non-habitual tax residents.

The speed at which courts of law operate can have a signif-

icant impact on the returns of your real estate investment.

Unfortunately, Portuguese justice has a reputation for being

slow, which can discourage international investors familiar

with this situation.

Progress has been made regarding the planning permission

processes both for refurbishments and newdevelopments.

Local and national authorities seem to be much more busi-

ness oriented and this is having a positive effect on real

estate investment.

Portuguese real estate players need to be aware of the

importance of the factors mentioned above and work to-

gether with the government and local authorities to achieve

improvements wherever possible. It is not possible to change

the size of the country vis a vis its European counterparts (at

least not in the short or medium term), but it is possible to

(i) implement economic policies conducive to growth and

stability, (ii) introduce adequate supervision mechanisms in

the banking system that prevent further collapses of sup-

posedly solid institutions, (iii) provide investors with a stable

and reliable tax framework and (iv) make sure that laws are

produced and courts of law are streamlined, so that justice

is available in due time.

Portugal is currently experiencing a good economic moment

and morale is high. But there is a lot of work to be done to

launch the country to a better position in terms of European

real estate investment. I am afraid that boasting about the

warmweather, good food, hospitable people, quality of the

national football team and victory at the Eurovision song

contest will hardly move the needle – the country has to

work hard at implementing structural reforms conducive to

growth and stability.

Paulo Sarmento

Meyer Bergman

Principal

«Portugal is currently

experiencing a good economic

moment and morale is high. But

there is a lot of work to be done

to launch the country to a better

position in terms of European

real estate investment»