25 Jan Challenging innovation with confidence
Luis Loureiro, CEO, Widerproperty, highlights the fact that quality of projects and services in the real estate market is paramount
How would you sum up the ‘key ingredients’ that Portugal boasts, making it such a competitive destination for real estate investors?
I believe that Portugal manages to compensate very well with differentiating skills on a smaller scale in the domestic market compared to other countries, as we are competitive in several areas including the real estate market. We have two large groups of differentiating factors, those we can consider as natural to the country and those developed by the real estate industry.
The country offers fantastic intrinsic characteristics, from the mild climate to the very good communication infrastructures in a wide context, our special way of welcoming everyone who visits us, including investors and their teams, the actual security of our cities or having known how to maintain the traditions that today present themselves as a historical heritage that enriches us as an investment destination. We are an appealing country to live.
In real estate, we learned from the various development cycles and crises that we have been through, namely the 2008 subprime crisis, and we have developed a real estate industry in Portugal. We combine the experience of a generation that started placing the country as an investment destination on the map, with young people with excellent training and in all areas of this industry, with international vision and experience, from project planning to its promotion, from setting up transactions to managing income assets. We have tested skills, and effective results, in managing the entire value chain of real estate investment. With the success experienced until the pandemic, we managed to ensure that the investment model is supported by international investors. I believe that this trend will continue. The investment experiences have met expectations and the country has been able to respond adequately to the new requirements, in a process of continuous improvement and the next goals in various areas are being discussed, for example, decarbonisation and environmental sustainability, taxation and simplification of licensing.
Real estate investors have been a driving force of the Portuguese economy in recent years. With a 15 percent contribution to GDP, the sector holds sway in defining what the immediate future should look like to revitalise activity. Could you provide us your overview of the current state of the real estate sector in Portugal?
With 10 months gone by, prices did not fall that would lead us to a market of opportunism. The bank did not have a very high degree of exposure and this is positive, despite some measures that could be more structured, the Government held the economy as far as possible. So far, the social climate is of concern for the pandemic but the economic crisis is not yet felt. The real estate market has shown maturity and investors’ bet has been confirmed. We live with the expectation of how we are going to get out of the pandemic, but with the certainty that we will have very important challenges. The impact of the end of the financing moratoriums will test the resilience of the economy and the capacity of banks, the resumption of activity will still be preceded by a few months of social distance, and there are natural doubts about the resistance of m2 prices in the various segments. On the horizon are also the European funds that support the Economic Recovery Plan and initiatives are underway to prepare the country in the best way so that the recovery is effective, during this decade, with realism. These are times when the technical preparation of management will be very important to plan and implement in a context of uncertainty, to make decisions that need permanent monitoring. However, we are also characterized by strong resilience, and it will be with this quality that we will resume the path of success that we built until the 1st quarter of 2020, continuing to attract international investors and providing projects with added value.
The taxation regime is a contested topic in any jurisdiction and industry, this is also true for Portugal. What is your interpretation of how the current tax regime for the real estate industry could be altered to favour the relaunching of the economy and incentivising a more business friendly environment?
We can always debate different ideas to find better solutions and in Portugal we have achieved important steps in the tax area, for example in the scope of investment vehicles (REITS Regime). But we also have a lot to improve so that we continue to evolve as an increasingly attractive investment destination. There is effective discussion and business associations play a very important role, including investor representation. This is a work in progress that we want whenever it is more favourable. Exemplifying specific cases as asked, and referring to structural areas, I place as a priority to maintain the Golden Visa regime as it exists at this moment, without changes, as well as to support investors more with real estate projects that assume commitments with longer terms in the country, as an option to improve their profitability. However, the most important factor that ensured that we evolve the national fiscal context in a direction favourable to investment was translated into the greater efficiency of the tax machine and its transparency, with lasting and effective effects.
Upon founding the organisation in 2014, the focus of the company was to fill the gap in the market for reputable real estate management services. After six years in the Portuguese market, can you give us a walkthrough in regards to your most emblematic projects to date and the scope and scale of your 360 degrees management approach to your operations?
Widerproperty fulfilled its objectives, as a start-up, made a successful path using a differentiating approach to overcome the real estate crisis. At that time, the market was obliged to radically change the financing model for real estate projects, with a drastic reduction in the exposure of national banks, as well as changes in the property model, evolving to structured investors, with a global view and international comparable. The management model was reacting slowly, or not reacting in some cases, and it was at this point that we identified the opportunity.
In a first cycle of activity, Widerproperty worked a lot with the portfolios of national banks, recovering assets in order to increase its valuation, the complete turn-around and then guaranteeing its sale, namely residential, logistical, tourist assets and shopping centres, or land without building permits for which we guarantee workable projects and which we sell. In a second cycle, we increased the weight of institutional and international clients, with specific assets or portfolios, in two dimensions, investment and divestment, always with the objective of guaranteeing all services to our clients, which could be complementary in view of the competencies already owned by our own teams, or full outsourcing as with a German client listed on the Frankfurt Stock Exchange for which we ensure an effective full outsourcing service. The objective of providing services from A to Z and 360 degrees has been implemented naturally, the team has worked together for over 15 years. The big difference is that we are now only managers and not owners, but that experience, feeling the responsibility for the property, was in our blood and is a differentiating factor in our way of being.
What would you say are the most pressing trends and requirements from investors when it comes to tourism, logistics and commercial developments?
As long as we are in a pandemic context, tourism enterprises will be in some way on standby but are not completely stopped, there is interest in projects that were already in operation, which have recognized quality. With the resumption of activity globally we will also resume tourism and this segment will benefit from the fact that it has very good projects on offer, in less known locations, in new and different environments. Logistics is on the rise, benefiting from the pandemic and the change in the transaction matrix imposed by social distance. There is high demand for some locations, in particular near Lisbon and Porto, as well as the installation of new international logistics operators in order to invest in new distribution models. It is a sector with excellent dynamics.
Regarding the new real estate development projects, we clearly have a very dynamic residential sector even in 2020, which continues this early 2021. The market had many ongoing opportunities that remain. There is an effective bet by international promoters on quality projects, at all levels, from the location to the management team, but at the end of the day with good expectations in terms of IRR and brand positioning. It was a pleasant surprise the way the last few months have passed, house prices have not reduced, investor interest has remained, we have naturally lowered the pace of new projects started, but the pipeline leaves us with good expectations. As for promotion in the office segments, it is currently indexed, people are telecommuting and will stay on for some time. There will be decisions on new work models legally supported, in a structured way, and, at that time, we will know how to be quick to adapt the offer of real estate projects to new needs, with a lot of preparation work already underway, for example the certification of buildings in human sustainability, with work done by doctors thinking mainly about people and how the workspace influences long-term health.
Over the last years the real estate investment market in Portugal has consolidated. In short, the most important requirements for investors are the quality of the projects in a comprehensive way, the fundamentals being the same as always, but now, and even more importantly, the quality of management. The security with which profitability expectations are presented and the way in which the way to get there is demonstrated are fundamental for the fulfilment of expectations.
From the interviews that we have conducted with several other players in the real state sector have started to show more of an interest and expressing that there is an increasing demand for new build assets for the Portuguese middle class buyer. Does Widerproperty have ambitions to get involved with ground up developments?
In fact, the residential market assumes demand for an offer aimed at the structured middle class, with a scale in Lisbon and Porto. This evolution is also due to an adjustment on the part of a segment that can buy a house but does not want expensive houses or be stuck with a bank loan that penalizes their lifestyle. A nice enough house, very oriented towards sustainability, areas suitable for the intended use, a rational house for families according to their needs.
Widerproperty is already in the promotion and guarantees solutions tailored to the needs of its customers. We work as integrators, we assume partnerships with other credible companies and we work as a contractor with its mandate. We are always looking for out-of-the-box solutions that allow us to create more value for our customers, we are currently working on built-to-rent projects and this characteristic is recognized in the Wider team. The goal is always to have an excellent delivery without occupying the investor’s space, acting as his team. The market has recently requested our involvement in larger scale projects and we can have very relevant news in 2021 in this field.
The future of retail will be shaped by two main trends, namely the impact of digital technology and sustainability orientated innovation. From an operational point of view, to what extent is the group integrating a digitalisation strategy into its new developments going forward?
The pandemic accelerated this trend, out of necessity, social distance and the closing of stores during confinement forced people to turn to online, many of them for the first time. However, it is not a completely new reality. Previously, we approached the omnichannel as something theoretical, now it is even so, several complementary distribution channels, connected to each other and in which physical stores will remain. In the shopping centres and retail parks we manage, effective changes have already been implemented to meet the new needs of online commerce in complementarity with the stores, and clearly others are going to occur. The pandemic will be resolved and the coexistence of online commerce and physical stores will be consolidated with serenity, all in the context of the new normal that we are assimilating.
There is another trend underway in this alignment, multi-user developments with offices, residential and retail, with stores fulfilling proximity and convenience for residents or business users. Previously, we thought of shopping centres as destinations for which travel was always provided with our own vehicle and for this we made available huge car parks. Decarbonisation priorities and growing market sensitivity to environmental concerns will bring new challenges to management in the way opportunities are presented, in terms of profitability and attractiveness to users.
In our interview with Mr. Eurico Brilhante Dias, Secretary of State for Internationalization, he said that ‘The current Industrial Revolution in progress is the first that happens at the same time for everyone, in which location is not a determining factor and in which talent, creativity and innovation are the capacities that will differentiate the winners from others’. How important is it for companies to re-invent themselves for the digital age? What can you tell us about the impact of the convergence of the circular economy and digital transformation 4.0 on your business?
It is necessary to put this theme in our priorities, it is clearly a differentiating factor for companies and countries, and it is an opportunity that we cannot miss. Widerproperty is attentive to this reality and strongly committed to innovation. For example, we are involved in a project with the objective of coming to assume the management, of what may be the first residential project in Portugal that is completely sustainable in concept, which involves the adaptation of marine containers for youth housing. The circular economy is completely ensured, from the recycling of containers avoiding the incorporation of new material, to the concept that elevates all factors of environmental sustainability to a higher level, as well as the guarantee of a low, very economical monthly income, with all services included. Industry 4.0 is underway and we incorporate it whenever we make any work process digital, but especially when we create them from scratch. Spontaneous digital thinking is already assimilated, while the pandemic has also accelerated this positioning. Currently we do not question some trips to work meetings, we have improved the means and we are more present with the teams. Visits to assets maintain their specific agenda that needs physical presence, so we keep the focus on objectives, as well as the commitment to presence in buildings as a guarantee of good management. Many of the assets assume dedicated full time resident teams, so we adapted all processes in order to be more productive and efficient, bringing the company’s management closer to all employees. The digital transformation clearly contributes to more sustainable work processes and the production of better results in providing services to our customers.
The real estate sector is currently in a price discovery stage following the pandemic, with a second wave further deepening speculation in the marketplace. Co-working , co-living , student residences or assisted residences make up the paradigm shift in real estate and new alternative investment markets in the sector. How do you envision the dynamics of the marketplace in the next five years and where will there be interesting opportunities?
I defend a posture of resilience to overcome the pandemic and the following years, in which we will have a demanding recovery to fulfil. The management of expectations carried out in an appropriate way is very relevant to generate confidence despite many uncertainties. However, the pandemic will pass and we will recover business rationality, we will resume activity and business will flow back into our market. Tourism will once again be a lever for positioning the country as a destination and we will recover the space gained in the international panorama. Until then it is important that there is no precipitation, this is how we can continue to avoid opportunistic deals that can ‘deregulate’ the market. It is normal for new formats to be proposed, or evolutions of previous formats and products, but the paradigm shift will be made more by sustainable construction, by stimulating new investment destinations in the country or by adjusting taxation so that it benefits structured investments with an impact in the medium and long term. Portugal has guaranteed maturity for its real estate market in the last economic cycle, so it will be able to generate opportunities in all segments, with different paces given the different impacts of the pandemic in each of them. It is difficult to predict at this point how we will be in 5 years, the global context is demanding, but we will have in favour of our market the international networking already built and the recognition of the global qualities of the country and the potential of real estate projects. There are interesting developments in logistics and in residential in the near future, new investments are expected in tourism in new regions. In terms of retail and offices we need to stay on top of the trends and adapt.
A chronic scarcity of supply for housing or rent, a prospect of non-appreciation of prices in the horizon of one year, combined with the uncertainty generated by the pandemic and pressure for discounts, are the background of the real estate market at the end of the year. What would be your message of continuity or stability to international investors who have been or are now interested in investing in Portuguese real estate?
At Widerproperty, we are analysing several investment possibilities with international players in which we can take over management. The sooner we manage to get out of the pandemic the sooner we will regain normality, admittedly with some new assumptions and adjustments at various levels, but we will continue to provide very interesting returns, superior to many other investment destinations to which we add the country’s differentiating factors.
The challenge is that they resume with us, as soon as possible, where we were in March 2020, believe in the management capacity of local partners and in the quality of Portuguese managers. We will be committed to developing effective opportunities, we are worth for the value we create for investors in real estate projects.
What would be your final message of trust in Portugal towards our readers of Newsweek?
Portugal offers a fantastic quality of life! Once foreign investors experience the Portuguese way of living and doing business, they want to stay. We know how to welcome everyone who visits us, always in an environment of tolerance and security, with unique natural characteristics, from sunlight to gastronomic specialties. The country’s tourist offer assumes a superior quality and deserves to be experienced, and most likely will force you to return. However, we also work to create simple opportunities in real estate, suitable for all investment profiles. We will work so that we can be an investment option for everyone. Portugal has much to offer: a moderate climate, great people, beautiful nature, great food, safety and calm, historic patrimony, and a professional business and investment culture.