On the 23rd and 24th of September, Iberian Property brought to Estoril the 8th edition of the Portugal Real Estate Summit, where Filipa Roseta, and Pedro Baganha, presented their strategies for developing more affordable housing in partnership with private investors.
Filipa Roseta, Lisbon City Councilor for Housing, Local Development and Public Works, emphasised the urgency of increasing the supply of housing as the municipality's top priority. “We want to increase the supply from all origins, public, private, all of them,” she said, emphasising that the Portuguese capital has the potential to grow with joint projects. “We want to build 3,000 public homes and we have another 4,000 to develop with private individuals,” namely through the new land concession model for building affordable housing. “We have public land available for 90 years, with the projects already approved - they really don't need to wait for approvals,” she reiterated.
The councillor called on investors to think long-term, referring to Nordic examples of success: “Look at Norway, Sweden, and other Nordic countries, where this works. They started with less than 100 units, and today they have 100,000”. She also emphasised that the main objective is to attract young people and families, creating projects with a significant social impact, namely affordable housing.
Filipa Roseta, Lisbon City Councilor for Housing
In Porto, Pedro Baganha, Porto’s City Councilor for Urbanism, Public Space and Housing, pointed to the shortage of affordable housing, especially for the middle class, as a major challenge: “We know that the only possible solution to the current crisis is to create more supply,’ he said, revealing his ambition to increase public supply from 2% to 10% over the next six years”. Despite this effort, he recognises that ‘it won't be enough’, which is why the municipality has an active Build to Rent model, based on renting and subletting.
One of the most ambitious projects will be the transformation of the Campanhã area into a new centralised hub and the construction of the first TGV line linking Porto to Lisbon. “We know what happens to all cities that gain this kind of infrastructure: they change for good,” he underlined. The city is making public land available, creating opportunities for the development of affordable housing with security for investors.
“We're proposing to be the investors' tenants for 10 years - we'll take over the rent from the owners.” The councillor assures that the Build to Rent market offers favourable conditions and that the city of Porto is prepared to host more initiatives of this kind.
Investors argue the need for compensation mechanisms to invest in BTR
A round table of investors followed up the debate, being moderated by Roger Cooke, MBE FRICS, Conference Chairman, and counting with representatives from Brookfield Asset Management, DWS, CBRE IM, Nook 42, and Arrow Global. The discussion focussed on the challenges and opportunities for investment in the residential and rental market in Iberia.
Alberto Nin Garaizabal, Managing Director of Brookfield Asset Management, highlighted the challenges of the Portuguese market, particularly in the Build to Rent sector. “Capital is not particularly bold, and we face many costs and difficulties, mainly due to unpredictable legislation. Yields are quite tight, which sends a clear signal to investors not to bet on BTR,” he said. In financial terms, the Brookfield Managing Director explained that their main exposure to living in Portugal has been made through PBSA (with the Livensa Living platform) which in his view offers the most attractive yields on cost. He also stressed the importance of liquidity, emphasising that the risks carried to invest in the housing sector need to come with a return, otherwise capital will be channelled to other areas.
“Alternative segments, such as student residences, can relieve the pressure on the housing market”
In the same vein, Christopher Hütwohl, CEO of Nook 42, argued that alternative segments, such as student residences, can ease the pressure on the housing market. “This offer is complementary. It shouldn't be one or the other. Affordable housing can be developed through projects that create community, such as Coliving where it’s possible to develop smaller units,” he argued.
And if it’s true that the visibility of PBSA has been growing globally fuelled by the the Exchanges programs, Coliving expanding by the hand of business travellers and digital nomads, there is one sector people continue to talk about and doing not much. “Senior housing is probably the most underrated demand…demographically this is the type of tenant who wants to plan is stay for 10 or 15 years, contrasting to a student that plans for 2 years at best”. There is a necessity of supply and innovation, but for Christopher Hütwohl the sector is sustainable and the time to take action is now.
On its behalf, Manuel Ibáñez, Head of Real Estate Iberia at DWS, revealed that DWS has invested heavily in affordable housing in Spain, but is not yet ready to invest in Portugal. “We're nowhere near investing in affordable housing in Lisbon or Porto. At the moment, we're competing with other geographies, and the risk-return binomial makes us concentrate our capital elsewhere,” he explained.
Deconstructing some myths, Hilke Nijmeijer, Senior Portfolio Residential Manager at CBRE IM, advocated that regulation is not the real problem, but rather its unpredictability. “People are so afraid of regulation, but it's normal in itself. In the Netherlands, we've had regulation for many years, and it works well. What creates fear is the lack of predictability,” she said. She went one step further and argued that even rent caps are ok if they are linked to inflation, and if they can be included in underwritings then there shouldn’t be reasons to worry about. “Lisbon is still not our priority right now, but if we can invest for 3 per cent without risk, why not? Private and institutional firms also need to understand their social impact and compromise their efforts with it”, she concluded.
Marten Foxon, Head of Hospitality at Arrow Global, shared his experience in Madrid, where clear regulation proved to be a decisive factor for investment. “In Madrid, regulation is well defined, and the return was attractive enough for us. What we can't have is an excess of regulation associated with licensing problems,” he emphasised. Arrow current rationale is centred in mixed-use, especially in searching synergies between the high-end residential and hotels, golf courses, retail and leisure activities. And on a straightforward answer, Marten Foxon said yes it makes total sense to invest in housing, illustrating that since 2013 residential pricing has increased on a like for like basis of 9% in Lisbon, and 10.4% in the Algarve.
“Regulation is not the real problem, but rather its unpredictability”.
“The challenge of regulatory stability is not unique to Portugal, but there are many issues to consider. There are no doubts about the fundamentals, residential has a massive supply problem…nonetheless the incentives are not good enough to bet on BTR and the public administration must understand our difficulty does not relate to rent, but instead to build – and for that, the tax association is the first step to emend”, noted Alberto Nin Garaizabal.
With an optimistic but cautious outlook, Manuel Ibáñez concluded that the Iberian market is in a competitive phase. “We are competing with other asset classes in different geographies. Free rental is still struggling to compete with the Build to Sell model, but Build to Rent for affordable housing could be the key to success, as long as there are compensation mechanisms in place, as could be making land available at zero cost, rent subsidies or guaranteed licences”.
A full Special Story on the Portugal Real Estate Summit 2024 can be read HERE.
