Foreign real estate investment: Post-pandemic

Portugal has welcomed significant foreign investment from in-ternational investors. However, a big question to be answered is what the post-pandemic will look like.

07.10.2021

Portugal has welcomed significant foreign investment from in-ternational investors. However, a big question to be answered is what the post-pandemic will look like.

Portugal was fashionable before the COVID-19 pandemic. Although it is unknown when the post-pandemic will arrive, it will likely continue to be a desirable market. This factor greatly influences property investment, particularly foreign property investment.

Property investment in Portugal

Portugal’s unique characteristics for attracting foreign capital are already well known: the climate, the food, the warm welcome, the security, the lower cost of living, a skilled and educated population, the use of English, the golden visa programme, and the non-habitual resident status, among others.

However, it is not only Portugal’s unique characteristics that justify the massive entry of foreign capital for real estate investment. The financial stability report of the Bank of Portugal (“BdP”) in December 2019 already warned, even before the arrival of the pandemic, of the risk arising from the significant appreciation of the real estate market. In fact, the upward trend in prices felt in recent years, especially in large urban centres, corresponds to a phenomenon of investors seeking greater profitability in a macroeconomic context of very low-interest rates and high liquidity throughout Europe.

In turn, the BdP’s financial stability report in June 2021 helps to understand what has happened since 2019 and what to expect in the future. The report analyses the recent evolution of the residential real estate market and the commercial real estate market.

Recent developments in the Portuguese real estate sector

During the pandemic, residential property market prices continued to rise in Portugal, although at a slower rate, and the robust demand from non-residents contributed to this increase.  Regarding the commercial property market, the evolution is quite mixed. The pandemic negatively affected the retail and hotel segments but positively impacted the industrial and logistics segments due to the growth of e-commerce. In the office space segment, despite the trend towards adopting hybrid working models, the scarcity of supply maintained the resilience of prices and rents. Foreign investment is significant in the commercial real estate market, with an 80% share of the capital invested in 2020.

What to expect post-pandemic

An environment of excessive optimism on the part of international investors, combined with a continuous search for higher returns in a context of high liquidity and leverage, may expose Portugal to increased risks. Should there be a deterioration in international financing conditions, resulting in a reduction in demand for real estate by non-residents, it could contribute to a general fall in the value of real estate assets in the medium to long term.

However, the short term post-pandemic trend is not expected to be very different from that seen up to now. Foreign property investors will continue to show a strong preference for investing in Portugal in most segments. Therefore, it will definitively influence the evolution of the sector in the short term.

If you liked this article, please share, save and stay tuned. It will undoubtedly be interesting to see how the real estate sector evolves in the coming years.

 

 

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