01 Feb Venturing into a market with unique dynamic
Diogo Pinto Gonçalves, Managing Director, Westport International, underlines the importance of changes in people’s mentality regarding the balance in the market
I would like to begin our discussion today by reminding the readers of Newsweek about Portugal´s uniqueness when it comes to the real estate market. Let us begin the interview by hearing you sum up the key ingredients that Portugal boasts that make it such a competitive destination for real estate investors.
Portugal offers a lot of opportunities for investors as well as tourists. We have a lot to offer in sub-sectors like cultural, gastronomic, religious and golf tourism. We have great beaches and more than 300 sunny days per year. Culturally speaking, we are a very welcoming people. On top of being a very safe country, these are some of the best reasons to cultivate tourism in Portugal. In 2010, we started a huge programme of rehabilitation of the cities which is one of the best drivers of the tourism industry. People usually like to travel to cities that are refurbished. When we started this programme, we also pushed for changes in law that would allow us to carry out this kind of rehabilitation. People started travelling to Portugal and they saw that we have a lot of arguments to pose as a top tier country in that regard. As mentioned before, one of the most important reasons is how safe Portugal is. People do not want to travel to countries that are not secure. With the refurbishing of cities, we can revitalize sectors that would be critical in enabling other sub-sectors, like gastronomic tourism. With this fever of sales we have witnessed over the last years, we have brought a lot of changes in Portugal and the cities, in order to incentivize more and more people to visit our country leading to a virtuous cycle between real estate, economy and tourism.
Real estate investors have been a driving force in the Portuguese economy in recent years with a 15 percent contribution to the GDP. The sector hold sway in defining what the immediate future to look like to revitalize activity. Can you provide us your overview of the current state of the real estate sector in Portugal?
As mentioned earlier, this programme of refurbishing the cities attracts many tourists, who are quite surprised with our country once they visit. The existence of programmes like the golden Visa, tax incentives and non-permanent residents led to a high demand for residential projects for international clients. Even if it created an increment in residential prices, the market in Portugal continues to be very competitive compared to other countries in the Developed World .As a consequence many foreign investors invest in Portugal because it also allows them to diversify their investment portfolio. For the reasons mentioned above, mainly the tax incentives, many foreigners opt to have their residence in Portugal. These were some of the reasons why this construction led to some great support for the economy, leading to this 15 percent contribution to the GDP (the virtuous cycle mentioned above). There were many foreign people that wanted to buy houses or engage with some investment activities in Portugal. As a result, we increased and improved such activities in the real estate and the construction sectors.
The taxation regime is a hot topic in any jurisdiction and industry. What is your interpretation of how the current tax regime for the real estate industry is and how can it be trained in favour relaunching the economy and incentivizing a more business friendly environment?
For foreign people that wish to live in Portugal there are some undoubtable tax benefits. From our part, we wanted to attract more of those people, with the assistance of the Golden Visa Programme amongst others. The Golden Visa Programme is soon to be amended by the Parliament, bringing in new rules that could affect some of those benefits currently in offer by the programme. However, there are already other programs being analysed and that will bring new incentives to guarantee that the Portuguese appeal does not diminish. If we treat this question from the point of view of a developer, the tax system in Portugal is really strict but it is not any different from anywhere else in the world . As developers we would like to have a lighter system in place. A system that would allow for more incentive to the reinvestment and not so much weight on what is paid to the state. I think the real estate sector is the only one that pays taxes to buy, to keep and to sell. If Portugal manages to change the tax ambience on real estate, I am sure that we will improve a lot more cities, as we will have much more development, with the tax authority winning much more at the end of the day.
The focus of the company has been on acquiring buildings in Lisbon and neighbouring cities with potential value-add opportunities. After five years in the Portuguese market, can you give us a walkthrough in regards to the most emblematic projects that you have going on to date?
Our very first project was Solar de Santana – a very large and difficult project, due to all the construction process and positions by the National Heritage Department as well as the Municipality. However, this was a great project that started the revitalization of an important neighbourhood in the centre of Lisbon. This project brough new developers that kept going with the rehabilitation of other buildings in the area. At the moment, we have six projects running: 3 starting construction in downtown Lisbon and the other 3 in licencing phase with the authorities. As soon as we get those licences we will start construction immediately and we will start looking for new projects and developments. We just keep doing our work and working with the authorities to overcome any difficulties that might arise. The market is very dynamic and thus there needs to be a quick approval process to guarantee continuity of investment and reward. We hope the authorities take this into account and can make their decision and approval process more expeditious.
Do you believe that all these issues are scaring off international investors, potentially turning them away from Portuguese real estate?
They might, but they should not. Even though, the real estate markets is global, the investment conditions in Portugal are still competitive and can still be the best option available. However, we need to be careful and stay attentive that we do not put ourselves out of the market with bureaucracy and regulations that make it harder for investors and developers to come to Portugal. I can only hope that politicians and decision making bodies take this into account.
Nova School of Business and Economic and your parent company Westmont Hospitality Group last year went into a strategic relationship that would promote innovation and reinforce practical hospitality knowledge in the next generation of leaders in the Portuguese hospitality industry. Can you give us a more detailed view into this partnership and why is it so innovative?
Our shareholder is very sensitive about people and wishes to set a long-term example. The best way to be here is to be in an association with a prestigious institution like Universidade Nova. Hospitality is a great way to give back to society, creating more conditions and opportunities for people. It is not about the money, but the conditions of cultivating a set of skills that will help a country as a whole moving forward. This is an amazing vision coming from our main shareholder and I am very proud to be part of it. The concept of hospitality is not only about hotels, but all the areas in the spectrum of economic activities that entail human interaction. The goal is to create that mindset for all the people and share this hospitality concept to create better new conditions.
The real estate sector is currently in a price discovery stage for the pandemic with the second wave further deepening speculations in the marketplace. Co-working, co-living and student 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 5 years? Where do you think there may be some new interesting opportunities?
Interesting opportunities can be found in all of those sectors, because the mindset of people has changed with this pandemic situation. One of the biggest changes lies with what people look for. People are looking for more space, allowing them to use their houses differently. This is supported by the increase in demand for bigger houses and with outside areas. We are spending more time at home so we look for better conditions. With remote working, people are also changing their needs to be in the city centre and therefore are now looking more in the outskirts of the big cities where there are more choices at a lower cost. I think that there will be a lot of opportunities, not on the mindset of the speculative situation but to answer the different needs of people.
What would be your message of continuity or stability to international investors who have been or are now interested in investing in the Portuguese real estate market?
My message should be directed to the authorities and the government rather than the investing public. If we need stability of investments, we need to create a formidable environment, rather than changing rules often. Otherwise, it will be very difficult to attract investors for the long-term. Competition is not about city to city, but also from country to country. It is hard to work on an international system when we are competing with other countries. Fortunately, we are a country full of potential and unique values. We can craft our own opportunities. We have lots of cosmopolitan cities and a stunning natural environment for tourists to come and visit. Portugal is a country with many advantages and opportunities, so long it taps into them properly. We need to gather funds and take advantage of all the opportunities that the country gives us.
What would be your final message towards our readers of Newsweek?
There are lots of opportunities here in Portugal. Our shareholders are living proof of that. Even within this pandemic situation, we will be on the right way by the end of 2021. We all hope that everything will be alright. The weather, the safety, the gastronomy and the environment are still here. Once this pandemic is over, there will be lots of things to do here in Portugal. For international investors, just like Westmont Hospitality Group wanted to invest in Portugal, there is promise and untapped potential in this country. With the Nova School of Business and Economics partnership we have proved that there is also fundamental social work carried out. We have social responsibility and we wish to cater for our society with knowledge to give and real estate to improve cities.