Pandemic Does Not Hinder Bondstone: Plans to Invest Over €400M in Portuguese Real Estate

Paulo Loureiro, CEO of Bondstone, assures that the company intends to invest a total of 400 million euros in the Portuguese market over the next few years, in partnership with international investors. He asserts that the country continues to demonstrate solid market fundamentals, with robust demand and a limited supply of new housing. In his view, the main challenge for the sector in 2021 will be securing bank financing. He also stresses the importance of political decision-makers reinforcing the perception of fiscal and legislative stability in Portugal, as well as the legal security of its systems.

What can be expected for the real estate market in 2021?

While acknowledging that the Portuguese real estate market may experience price adjustments in 2021, Loureiro maintains that the country’s economic fundamentals and demand for new housing will remain favorable in the long term. The country continues to show solid market fundamentals, with strong demand and a limited supply of new housing, particularly projects aimed at middle-class families seeking products suited to recent structural trends and behavioral changes triggered by the pandemic.

Loureiro anticipates the intensification of three major trends in the residential segment in 2021: decentralization (families moving to secondary cities and less densely populated areas), upsizing (people seeking larger homes with more rooms, office space, and ample outdoor areas), and relocation (remote workers or “working nomads” who will continue to move internationally). Portugal presents real attractiveness as a relocation destination for organizations and individuals, especially in a post-COVID world of remote work, offering an abundance of skilled labor, relatively low cost of living, and high quality of life.

What challenges will the sector face this year?

In Loureiro’s opinion, the main challenge for the sector in 2021 will be obtaining bank financing. Faced with an imminent recession and rising unemployment rates, the banking sector will play a crucial role, ensuring continuous liquidity flows to families and businesses. Unlike in 2008, banks’ lack of liquidity should not be an issue, as this is not a financial crisis but a disruption in the real economy. Thanks to the swift responses from the Portuguese Government and the European Commission, banks will benefit from a constant liquidity flow, which they should redistribute to companies and families to mitigate the potential wave of financial stress and insolvencies.

In the real estate sector, Loureiro foresees more stringent financing conditions, with banks adopting a more conservative stance, requiring more equity from developers and investors (i.e., reducing the loan-to-value ratio) and likely reducing their risk appetite, thus rejecting more financing requests. There is a natural risk of excessive caution in the financial sector, with banks adopting a “Darwinian” approach, financing only the well-capitalized companies, which could result in a lower investment volume in 2021. Furthermore, besides financing real estate investments, banks play a fundamental role in financing home purchases for local families, making it important to observe the mortgage market’s evolution in 2021. Families’ financing capacity will be crucial to sustaining the real estate sector in 2021.

What measures should be taken in 2021?

Expectation management is crucial in financial markets. Investment decisions are always a bet on the future, so real instability is not even necessary to deter investors; merely the perception of potential risk, political instability, or tax uncertainty can delay, halt, or even reverse international investment overnight. Most international investors express the same concern when considering Portugal: is the country politically, fiscally, and legally stable? International investors and developers do not have a political agenda; they do not seek political favoritism (they actually avoid reputational risk at all costs). If the investment climate is positive, they invest; if not, they look for opportunities in other geographies. It is important to remember that most real estate investment in the past seven to eight years has been international. Without this international engine, the Portuguese real estate sector would not be where it is today.

Therefore, it is essential for political decision-makers to reinforce the perception of fiscal and legislative stability in Portugal, as well as the legal security of its systems. With this small effort from the public and political spheres, private actors can demonstrate to international capital markets that the risk/return ratio of the Portuguese real estate sector is appropriate. A simple and easy-to-implement measure would be to promote dialogue and cooperation between the government, municipalities, and developers and investors to guide international investment into the Portuguese real estate sector. Another necessary and urgent measure is the creation of “fairer” rental legislation for all parties and mechanisms that invest in public housing. The government and municipalities should focus their efforts on social and affordable housing and leave (and even encourage) the private sector to build housing for the middle class.

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