The third and final session of the Portuguese Real Estate Investment Vehicles & Financing conference, which took place last Friday in Lisbon, focused on innovation in property investment vehicles in Portugal. Experts in the sector analysed emerging trends and debated the extent to which the national market is creating its own solutions or merely following models imported from other European jurisdictions. The growing importance of investment funds and private equity was also highlighted in a debate that emphasised the increasingly decisive role of regulation in this segment.
Frederico Arruda, Member of the Board at APFIPP & Partner at Refundos Explorer, began by emphasising that ‘2005 was a turning point for closed-end funds’, marking the beginning of a new cycle in the sector, followed by ‘a cycle of tax changes’. In 2015, with the introduction of a new tax regime ‘equalised with the whole of Europe, taxed on exit’, the sector was given a new lease of life, registering ‘exponential growth coinciding with regulatory stability’.
According to him, Portugal has ‘a very strong track record in terms of corporate investment’ and, despite the ‘many associated risks, namely the rental law’, the country today has strong potential: ‘Looking at Europe, Portugal has potential and can aspire to be a platform for property investment. We've seen good growth in recent years.’
‘This gain in confidence comes from regulatory stability’
Frederico Arruda also pointed out that the market has evolved from a context dominated by companies and funds, which ‘didn't attract or satisfy a certain type of client’. The introduction of the SIC regime was, in this sense, an important step. ‘The wheel wasn't invented, it was just implemented so that we could be competitive with the rest of Europe. It was innovative for Portugal, and it was complementary.’ In his view, this is ‘the vehicle that is best positioned to solve the housing problem’, although he admits that ‘we're going to have to change the framework’. For him, ‘this gain in confidence comes from regulatory stability’, which he considers essential for attracting investment: ‘without it, you can't attract investment. It has played a very good role.
Round table debate
The panel discussion, moderated by Marisa Larguinho, Partner at Morais Leitão, brought together representatives from the CMVM, Square Asset Management, Norfin and Caixa Gestão de Ativos, in a conversation centred on the challenges and opportunities for real estate investment vehicles in Portugal, in light of the new regulatory framework and market requirements.
Carla Mãe, director of supervision at the CMVM, began by emphasising that ‘at the CMVM we reflect on innovation in the sector on a regular basis’ and that, in asset management, ‘our concern is to understand the specificities of the national market and whether or not it is justified to have some differentiators’. To this end, he revealed that the regulator has endeavoured to ‘eliminate elements that are more demanding for the national reality than for the European reality’ and reinforced the objective of ‘making Portugal competitive’.
Among the measures under study, he emphasised the importance of ‘allowing the category of alternative funds without a pre-category of assets’ and highlighted another differentiating aspect, ‘the fact that funds intended exclusively for traditional managers don't have to have a custodian bank, we understand that investors play the role of supervisor’.
On the other hand, Luís Souto, Executive Director of Square Asset Management, said that ‘we've had funds on our market for over 30 years, we have experience that some European markets don't have’. For him, open-ended funds benefit from the ‘best European regime in Portugal’, working as ‘a complement to equity’. He also emphasised that ‘we don't have small savers who traditionally have an appetite for volatility’ and that ‘there is a very ingrained idea that volatility is a big risk’. In this context, ‘the other complement provided by the funds removes some of this volatility from the market’, which is ‘an important factor for growth on the equity side’.
‘We have a very competent industry that can compete with anyone, a regulator that works, transparency, but the ecosystem around this core doesn't work so well’
Francisco Sottomayor, CEO of Norfin, considered that ‘the fact that we are a small market no longer has the barriers it used to have’, and that ‘this simplification journey is being done well and contributes to that’. He emphasised that ‘we have a very competent industry that can compete with anyone, a regulator that works, transparency, but the ecosystem around this core doesn't work so well.’ Even so, he was cautious about the potential for attracting foreign investment. ‘With the current constraints, I doubt that investors will move away from their traditional markets to come to Portugal’ and ’I don't think there's any potential for relocating investments to Portugal. Those who invest here have interesting and sufficient structures, and most of SIC's capital is foreign.’ Despite this, ’we're still an attractive market, the fundamentals are here.’
Regarding its role in housing, Francisco Sottomayor considered that ‘this sector can play an important role in the issue of the crisis of access to housing (certain types of housing)’, adding that ‘this type of capital can adapt easily’. He also mentioned that ‘the EU is preparing a strategy for the housing sector’ and that ‘we have a European housing problem, I think that part of these affordable housing projects can benefit from these instruments’.
Sérgio Meireles, Member of the Executive Committee of Caixa Gestão de Ativos, noted that ‘we have been walking alongside the regulator, and we already have a developed industry with very interesting results’. He recalled that ‘funds emerged in 1987’ and that there is a growing concern with ‘raising individual capital’, emphasising that ‘the investment needed for the new infrastructures will also have to raise individual capital’. In terms of solidity, he said that ‘we are highly capitalised, and that's not an issue for us at the moment’. He also admitted that ‘it's true that we don't have as much liquidity or literacy and willingness to invest in vehicles like SIGIs’, but ‘with concertation, we can get there’. He recognised that ‘the regime needs some adjustments’ and that ‘we've had situations such as the pandemic, inflation and interest rates’, but reiterated that ‘that design doesn't exist here today’.
‘One of our flagships is regulatory stability’
Carla Mãe spoke again, emphasising that ‘one of our flagships is regulatory stability’, but warned that ‘we're going to have to revise the RGA because a new European directive has come in and we have to transpose it. So, yes, stability, but there are moments we can't control.’ Francisco Sottomayor agreed, saying that ‘revising the RGA is a very positive change. It was very well received,’ adding that “it's normal for the regulator's own mentality to take some time to adjust”.
By consensus, everyone recognised the importance of funds in the new cycle. For Luís Souto, investment funds ‘will be an obligatory vehicle in all these new housing programmes. We're really going to be there’. Sérgio Meireles emphasised that ‘yes, it's indisputable, and they are one of the best tools for achieving this goal’.