Reward Properties - Av. da Liberdade 108 3rd Floor

Portugal is undergoing some changes. Many British citizens who eschew Brexit are relocating there, thanks to beaches and start-up-friendly taxes. Non-EU residents are able to get a golden visa.

Chinese buyers have been particularly interested in the golden visa opportunity that Portugal offers, giving access to the EU, and the country is the fifth biggest destination for Chinese real estate purchasers. Making up 80% of purchasers under this scheme, they have typically bought managed apartments in Lisbon as pure investments. Russian buyers, on the other hand, have tended to look to Cascais and Estoril. Lots of millennials are also moving to Lisbon, which has a thriving start-up scene, and tech entrepreneurs can get a start-up visa.

Lisbon, and Portugal more generally, is emerging on the European and global stage as an increasingly fast-moving ecosystem that will benefit from its continued EU membership, international outlook, welcoming culture, and can-do work ethic. Portugal remains a highly sought-after location, from both the investment side and the personal side as a country to relocate and live. Good weather, solid infrastructure, safety, a high-level health system, an internationally recognised education system, and a below European average cost of living will certainly enhance the attractiveness of Portugal as a place to live in a post-pandemic environment where remote working will probably become a new norm for many of us.

In 2021, investment strategies will favour sectors with defensive characteristics, which benefit from macro factors such as demographic shifts. The living sectors, including multifamily, senior living and even student housing fall into this PRS (private rental scheme) category. An ageing population, and the increase in demand for rental during times of economic uncertainty, will support the fundamentals. The pandemic had a heavier impact on the PRS sector with students postponing their plans to study abroad. Nevertheless, studying has countercyclical characteristics with admissions rising in recessionary environments.

Residential has already become a core segment of investment strategies. Its share has increased by one-third this year and in some markets, it captured between a quarter and one third of the activity in 2020. In 2021, investor demand is expected to further intensify, but finding income-producing investments will be challenging. In some cases, forward funding new developments may be the only way to get exposure in the sector.

Intense competition has been pushing yields down rapidly in 2020, with prime yields at record low levels (European average at 3.4%). We believe that prices can rise further, especially in markets where rental housing supply lags demand, like in Lisbon. In the short-term, rental growth may be muted, in line with inflation, but income streams from residential are characterised by stability and resilience.

In Lisbon, supply proved to be scarce, a situation that was clearly evidenced by numerous houses sold off-plan, which became a widespread practice. This imbalance between supply and demand has resulted in significant price increases, in some cases up 50%, across the country, since 2013. There has been double-digit percentage growth in new construction over the past three years, with 14 400 new homes completed in 2019. Despite this dynamic, the number of housing completions is still far from the high levels of the previous property cycle (2000-2009), when an average of 84 000 units/year were completed, according to real estate company CBRE.