At a time when the sector is looking for answers in an uncertain economic context, the ‘Portuguese Real Estate Investment Vehicles & Financing’ conference was held this Friday at the Pestana Palace Hotel in Lisbon. The first session - ‘Macro Events are always giving us food for thought’ - centred on analysing the global economic situation, debating the main factors that could influence investment in Portugal in 2025. The direction of the government's economic policy was also in focus, in a discussion marked by international volatility.
António Alvarenga, professor at Nova SBE, international consultant and researcher, opened the conference with a reflection on the future and macroeconomic challenges. He began by saying that ‘we work on the future, which doesn't really exist, [future] exists only because we believe in it. For those working on this transformation, it's interesting to live in these times where everyone talks about the turmoil future,’ he reflected. In his analysis, ‘the future falls on us through expectations. We make decisions based on expectations, we invest based on expectations, and so we can't escape them, we have to pay attention to them, understand how they work.’
In the field of investment and finance, António Alvarenga said that ‘it's always a question of trade-offs’. He highlighted several archetypes that mould the way we think about the future: ‘that of continuation, that of unsustainability and collapse, that of control and the need to discipline the future, and that of techno-optimism’. For the keynote speaker, it is essential to understand whether investment scenarios take on any of these models, because ‘studying them and being aware of them is a way of building the future’.
On the other hand, he questioned whether ‘archetypes are useful, they are a way of organising reality, of looking at the world, but do they facilitate decision-making? It depends,’ warning that ’not everything changes at the same speed. We can't be overshadowed by the speed of technology when we look at the evolution of governance, for example.’ António Alvarenga added that ‘we are more sensitive to fast changes, but slow and structural changes can be very significant, such as cultural changes’.
‘Managing risks is relatively easy, because risk gives us probability. The problem is that the new uncertainties don't give us mathematical data’
On the economic front, he emphasised the transition from a paradigm of risk to one of uncertainty. ‘The 20th century was the century of risk, of big industries, of physical investment in infrastructure. Managing risks is relatively easy, because risk gives us probability. The problem is that the new uncertainties don't give us mathematical data.’ For the financial sector, he emphasised, ‘the risks they face today are structural uncertainties, whose probability is not given by the event, because it doesn't happen often enough’.
International analysis
António Alvarenga's international analysis was marked by realism and some concern. The US, he said, is ‘in a unique situation: brutal debt, inflationary pressures’, but even so ‘it's possible that it will continue with interesting economic growth’. Regarding China, he was adamant that ‘it shouldn't return to the old levels of growth’. Europe, on the other hand, ‘is more predictable, because it's stagnating. It would be a surprise if it suddenly started to grow,’ he said. ‘Slow to decide, to innovate and to replicate technology’, Europe, he said, continues to depend on Germany, but the German scenario is worrying, since “it's in a technical recession, the government wasn't approved the first time round, there's a big energy transition cost, an ageing population and it hasn't caught up with the technology train”.
As for financing costs, he warned that in 2025, ‘everything looks very good, but we have the increase in debt issuance, it's never been so big, 40 per cent matures in 2027, we're going to see a lot of refinancing movements.’ Despite trade tensions and the growing interdependence of central banks, ‘money has been flowing in’, but the sustainability of this flow is increasingly uncertain.
The environment
On the environmental front, he was blunt, saying that ‘with climate change, we're going to be a desert, we're going to lose coastline. Will there be soil between the coast and the N1?’. He also asked: ‘Who manages carbon, when property accounts for between 40% and 45% of emissions?’. He also warned about the limits of investment, because ‘you can't invest in everything, it has to be “future proof”. There are ‘fossil houses’ that may not be able to go on the market without very expensive conversion.’
Technology
In the field of technology, he stressed the urgency of industrialising the sector: ‘You can't keep building houses with scaffolding. We need productivity increases with industrialisation; it's one of the sectors with the biggest productivity increases.’ With regard to artificial intelligence, ‘algorithms are gaining confidence, because AI may not be right, but at least it's not fooling me’.
‘Everything is ‘more or less fine’ in Portugal’
Regarding Portugal, ‘everything is “more or less fine”: wages are rising, tourism is incredible and monetary policy is more flexible.’ However, he pointed out several weaknesses, including ‘difficult taxation, slow justice, a rigid labour market, a very ageing population, a serious social security problem, we are one of the least productive in Europe and very exposed to a few countries’. Finally, he left a direct criticism of the application of the PRR, emphasising that ‘I don't understand why the PRR has to go to companies and not to the state’.
Round table debate
The first panel of the conference, moderated by Manuel Puerta da Costa, President of APAF and chairman of the conference, brought together Óscar Afonso, full professor at the Faculty of Economics of the University of Porto, economist Cristina Casalinho, and Luís Mota Duarte, deputy CEO and executive director of investment management at Sonae Sierra, in a debate centred on the structural challenges of the Portuguese economy, the need for reforms and the opportunities in the real estate sector.
‘If we want to grow in terms of potential GDP, we have to reform. Unless we want our young people to continue wanting to emigrate’
Óscar Afonso drew a bleak picture of the evolution of national economic growth in recent decades. ‘We grew until the year 2000, and from then on we stopped. An annual average of 1% from 1999 to 2023, doubling GDP after 70 years.’ Despite recognising a more expressive momentary growth, he attributed it to cyclical factors such as the PRR and tourism, warning that ‘after this phase of implementing the PRR we will resume our natural trajectory’. To change this course, he advocated urgent structural reforms: ‘if we want to grow in terms of potential GDP, we have to reform. Unless we want our young people to continue wanting to emigrate.’
Cristina Casalinho countered with a more optimistic approach, although she was aware of the obstacles. ‘These narratives don't work. If we say that our challenges are too demanding, that turns us off and discourages us from changing.’ He preferred to focus on the construction sector, which, he recalled, ‘was one of the sectors that grew most significantly and even caused problems before the financial crisis,’ at the time accounting for around 12 to 13 per cent of GDP. In the meantime, ‘the level of indebtedness of companies and families has fallen significantly. This means that companies have made a big effort to make themselves viable, and a large part of their investment is no longer dependent on bank credit, for example. It has one of the lowest levels of profitability, which is why it's not growing any more.’
The economist also emphasised the contribution of exports to GDP growth, especially in the agri-food and agricultural sectors. Even so, she pointed out structural weaknesses: ‘we have insipid capital markets, which is a brutal handicap for the growth of the productive sector. We don't have pension funds, we don't have medium- to long-term financing.’
‘Portugal has been perceived as high risk, but it's really not. We even have a lot of stability compared to other markets’
On the other hand, Luís Mota Duarte emphasised the importance of a constructive outlook, considering that ‘there is a lack of optimists in Portugal. We're like never before, public accounts are fine, disposable income is fine, the economy is growing’. In his view, the country is experiencing a favourable moment and the focus should be on creating the conditions to maintain growth, namely with investment in infrastructure. ‘Portugal has been perceived as high risk, but it's really not. We even have a lot of stability compared to other markets.’
Regarding the housing market, he recognised the challenges, stressing that ‘prices have grown much more than the economy, despite starting from a very low margin’. He also considered that, although society needs Build-to-Rent (BTR) more, ‘it's much more attractive to build Build-to-Sell (BTS)’. In this sense, ‘we can all do more, we could get a group of these economic agents together to create more housing, while still being profitable, and the state would certainly contribute to an initiative like this’. At Sierra, ‘we're trying to do some things, with the awareness of a lower return. I think real estate often waits for the state to sort things out, but in the meantime we can all do much more.’
‘A lot of labour capacity in the construction sector has been absorbed by tourism or agriculture, which shows that entrepreneurs respond to stimuli’
In the same vein, Cristina Casalinho warned that ‘we have excess demand, although we still have more dwellings per inhabitant than in the EU, we have a distribution problem. It's not just the placement of new homes, it's the revalorisation of degraded urban areas.’ Construction ‘will continue to face competitiveness challenges, especially if we consider environmental requirements. The response will have to be demanding, especially in terms of profitability.’
Óscar Afonso emphasised that ‘we need to stimulate new construction, but also the rental market. It can be both an engine and an obstacle if it diverts resources from other sectors, or if it doesn't build at all, keeping the price so high.’ He also pointed to decentralisation as an instrument for relieving the pressure on housing and proposed concrete measures, including the IRC ‘which should be reduced to generate more growth. The state should continue to reform and free up resources to allow for more investment.’
In agreement, Cristina Casalinho stressed that ‘IRC must be simplified and stabilised, without major changes’. She identified a structural misalignment in terms of public employment, where ‘the public administration has been used to absorb labour. If we want a more digitalised, more efficient public administration, we'll have fewer people, and better paid people.’ Luís Mota Duarte said that ‘paying taxes isn't bad, the problem is where those taxes are used’. For the head of Sierra, the biggest obstacle is unpredictability, and ‘there is a discount for uncertainty almost. Stability and transparency is the most important thing in terms of taxation’.