Paulo Loureiro, CEO of Lisbon-based private-equity real estate investment and development firm Louvre Properties, believes that success in one of Europe’s hottest property markets boils down to one trait: speed. With circa €60 million invested in Portugal so far, Loureiro asserts that in a market where buyers are willing to purchase off-plan luxury apartments based on 3D images and developer’s reputation only, having deep pockets and instantly deployable capital can make all the difference. Loureiro explains his firm’s insight on the Portuguese real estate market, its challenges and where it’s all heading.
Do you believe the current real estate market is sustainable?
In 2011/2012, the so-called “Troika” (EC, ECB and IMF) fostered an overhaul of some obsolete Portuguese rules and regulations that markedly boosted demand for residential real estate. From this point on, Portugal’s real estate market entered an upcycle born out of a perfect storm – the conjunction of a renewed foreign demand for residential properties and a favorable real estate regulatory environment, principally an enticing tax regime and the implementation of an efficient Golden Visa program, instantly revitalized the local real estate industry. We are of the view that, as long as supply doesn’t catch up with this sudden demand, there will still be significant room for growth, which looks likely to continue for the foreseeable future, barring any changes to the current legal framework. As an example, today’s residential market is so buoyant that people are buying property in Lisbon and Porto mostly based on 3D images and developer’s reputation. If you want to acquire a specific apartment in a distinct location, there is no choice but to buy it off-plan, often one to two years ahead of delivery.
Why has foreign demand increased so rapidly?
Foreigners are rushing into Portugal for many reasons. There is a new wave of European retirees who find Portugal an attractive destination from a tax standpoint alongside the warm weather and an affordable cost of living, similarly to US senior citizens moving to Florida to benefit from no state taxes and the sunny weather. In addition, Portugal is currently attracting a growing number of start-ups and young entrepreneurs who find the business environment conducive to their adventure. Actually, some astute politicians want to position Portugal as a mix of Florida and California’s Silicon Valley. Regarding our tax incentives, as long as the EU doesn’t adopt a form of fiscal union, every member stare is free to set up its own fiscal policies and Portugal has deemed convenient to take the route of attracting people and corporations with a set of incentives, which we believe was essential to the renaissance of the Portuguese economy.
Can you give us an example of pricing in the market?
On the prestigious Lisbon’s Avenida da Liberdade, premium residential units easily sell for €8,000 to €10,000 per square meter, while office spaces go for €3,000 to €4,000 per square meter. Because of this significant price spread, most of the real estate developers have gradually converted office spaces into residential units in downtown Lisbon over the past five years. As a consequence, Lisbon is currently witnessing a lack of office spaces. That’s one of the most compelling opportunities, in our view. Because office prices will inexorably move up, so will rents, we have decided to expand into the office market and have already bought five units. As opposed to the residential development segment, a bet on the office segment answers to a yield strategy, which means a longer-term investment. Interestingly, we have seen a lot of demand for this product, mostly from foreigners. We view this as a recent and hopeful trend for the local real estate market – foreign investors placing long term bets on the Portuguese economy; a shift from opportunistic to core investments.
What are some of the biggest challenges limiting property sector growth today?
Lisbon Portela Airport is confined within city boundaries, which restricts its expansion, and in turn limits Portugal economic growth potential. A sustainable and growing economy is the ultimate catalyst to the real estate industry prosperity, so the close-to-max capacity Lisbon airport could soon become a bottleneck to our growth if a new one is not planned and built in the near future. Red tape is another challenge most of us face. The permitting and licensing processes are so cumbersome that we sometimes pass on good deals because of the uncertainty of bringing real estate projects to completion within a “reasonable” timeline. Not only the public administration can be a deterrent to the sector’s growth, the banking industry can also slow down private investment with its relatively archaic decision-making processes. Finally, with an acute labor force shortage in the construction industry, we are of the view that the minimum wage needs to be revisited in order to entice workers who left the country during the 2008-2011 crisis to return to Portugal. It doesn’t make economic sense to have minimum wages under €600 in modern-day Europe.
What profile do your buyers fall into and for what projects?
We currently have six residential projects in downtown Lisbon and one in the lovely coastal town of Cascais. So far, we have witnessed a relatively split mix between local and foreign buyers. For example, in our “Alexandre Herculano 41” luxury residential project located 200m away from Avenida da Liberdade, 18 out of 21 apartments have been sold off-plan to foreigners and, interestingly, two out of the three Portuguese buyers live abroad (in Zurich and Brussels). So, in this specific development, only one out of 21 apartments have gone to a local resident. On another luxury development located on top of the Santana Hill in Lisbon, 20 out of 25 apartments have been sold to local Portuguese residents looking to upgrade their living standards. Our last ultra-prime residential development “The Nest”, located at Rua Rodrigo da Fonseca 11 in Lisbon’s Golden Triangle, seems to appeal equally to Portuguese HNW individuals and to foreigners from Brazil, the US, Scandinavia and the UK. We expect our next four residential program launches to attract both foreigners and locals.
What is Louvre Properties competitive advantage?
We’re deep-pocketed and nimble. We can deploy private-equity capital to buy property on the spot and, opportunistically apply for bank financing for the construction works. In today’s hot Portuguese market, developers such as Louvre Properties have a relatively limited amount of time to acquire an attractive asset – often less than a month. Therefore, you can’t depend on bank debt before bidding on a property because local banks can take four to six months to approve financing a real estate project. Some of our competitors don’t have this competitive advantage and rely heavily on bank debt to grow. We don’t.