This can be achieved only through structural reforms (labor market, pension system, fiscal measures, efficient public expenditure, and banking sector). Reforms of this caliber require institutional and political support.
To present a competitive and stable investment framework:
REIT regime brought to Spain capitalization and re-positioning of the RE industry for simple, yet capital, reasons: it’s efficient and it marks-up with the standard of investment structures in developed real estate economies. Except for short-sighted protection of RE fund industry and difficult political support for transparent tax structures (even would be mainly used by institutional long term real estate investor) we only see benefits for Portugal by implementing a competitive REIT structure.
Investment in Portugal has to cope with higher CIT (and its “temporal” surcharges) and the burden of IMT-IS. This favors opportunistic, leveraged investors using more aggressive tax structures (very useful in the early stages of the recovery but not sufficient for stabilization).
Cope with excess of liquidity/lack of product:
The market in general is suffering from an excess of liquidity and yield that tends to price assets in extremes. The relatively low size of the real estate market in economies like the Portuguese can intensify this effect. It is a reality that rents have broadly stabilized in the office market throughout Lisbon and that tenant incentives, at par with vacancy, have diminished significantly in the most active areas, but economic recovery is still too weak to allow for a true de-leverage at public and private levels and we may have to cope with turbulences ahead that in our view are not being priced-in.
In summary, true recovery will only come from continued improvements in competitiveness where there is still significant ground for improvement and that will need broad structural reforms. Portuguese economy and RE industry could be greatly benefited from a REIT structure that would bring long term investors into play. These investors could represent a safety net for investment volumes that, despite its current levels, could suffer from future potential turmoil which in our view is not priced-in by the market given the investment yield pressure.