Portugal: Tentative Investor Sentiment Despite Appealing Risk-Return

RE investors at Europe GRI 2023 describe tentative sentiments in Portugal despite strong fundamentals and favourable risk-return

November 10, 2023Real Estate
Written by Helen Richards

Portugal’s notably swifter post-pandemic recovery drew attention at this year's Europe GRI 2023. Portugal has been quietly outpacing the rest of Europe in terms of economic growth, with its GDP surpassing the European average.

Participants at the ‘Portugal Capital Gains’ panel discussed the key drivers behind this growth. The thriving hospitality and tourism sector was noted as a substantially contributing factor, as well as rising consumerism rates, higher real disposable individual income, and sound public finances.

Foreign Investment

The increase in foreign investment over the past 7-9 years, currently standing at 70% of total investments, aligns with European averages, with prominent nationalities among foreign investors being North American, Middle Eastern, South African, Turkish, and British.

When asked what makes Portugal so appealing to foreign investors, panel participants reported the following:
  • Low leverage: Portugal stands out with its low leverage of individual and corporate balance sheets.
  • Supply and demand imbalance: Portugal experiences a structural imbalance between supply and demand in the market, with a slow supply and a rising demand for various services and goods. This has been further spurred by the remarkable increase in the international population.
  • Appealing risk-return profile: Compared to other countries, Portugal offers an attractive risk-return profile, making it an attractive destination for investment.

Investor Sentiment

Sentiment during discussions suggested that foreign perspectives on Portugal may not fully reflect these facts, as the country is typically seen as a high-risk country with unreliable political figures. 

Panellists, including foreign investors, shared their experiences and points of view about the evolution of investment in Portugal. Although experiences varied, they highlighted several common key points:
  • Bureaucracy in licensing remains the most significant and frustrating challenge. Especially with the long processing time, the lack of transparency, and very rigid urban planning, licensing is a significant obstacle to real estate investment. Comparisons were made with other countries like England where the real estate market is much more transactional.
  • Current construction costs are especially high. At times, they are on par with countries such as Belgium but for a lower quality product. This challenge extends beyond major cities like Lisbon; project development in more rural areas has proven even more challenging, with construction costs matching those in urban areas and land value especially elevated.
Nevertheless, a number of shared experiences were more positive:
  • Portugal promises long-term sustainability and vast opportunities, especially as the country invests more in its infrastructure.
  • Foreign investors seeking more qualitative and less risky, long-term investments opt for investment in Portugal over other emerging countries where they could make higher profits.
  • Project development in Lisbon offers exciting opportunities, as other major European cities become saturated.
  • The favourable macroeconomic environment supports promising returns in the real estate sector.

Bureaucracy in licensing was highlighted as a significant challenge among developers. (Image: GRI Club)

Local Know-How

Participants agreed that when investing in Portugal, local partners are key. It was emphasised that it is fundamental for international investors to collaborate with local partners in LP/GP structures.

The Portuguese real estate market is not as structured as other European countries, making it a complex landscape to navigate without local insights. In addition to identifying opportunities - many of which are not immediately evident to outsiders - local partners play a crucial role in understanding local market dynamics.

Sourcing land opportunities also requires local partnership as the process can be multifaceted with market assets that are held by different parties and not yet aligned with market sophistication. Furthermore, the complex legal system in Portugal demands local expertise to facilitate transactions.

Portugal continues to show great appeal for investors with a number of opportunities in an economy which is strengthening, however the country remains behind other more developed markets in Europe, therefore requiring effective partnerships, adaptation to local nuances, and patience in navigating regulatory processes.

All key takeaways from Europe GRI 2023 are published on the GRI Hub. Join GRI Club Europe to gain exclusive access to events, club meetings, and invaluable insights first-hand.

The Portugal discussion will continue at the GRI Portugal Women’s Meeting on December 5. Read more and register here now.