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Portugal’s Real Estate Market Attracts 26,000 Investors in One Year
6 July 2018
The absence of alternatives is leading investors to products that focus on the real estate market.
More and more Portuguese are trying to profit from the real estate boom. Investment funds that operate in the sector are witnessing buoyant demand. Within one year, real estate investment funds attracted more than 26,000 new investors.
Residential real estate prices have increased rapidly while commercial properties have seen a modest recovery at the same time as most traditional financial investments are offering yields that are close to 0%.
“The newfound interest in these investments is largely due to one thing: profitability,” explains Pedro Coelho, the executive director of Square Asset Management, which runs CA Património Crescente, the largest Portuguese fund in the sector. The fund has a portfolio valued at 565 million euros.
Earnings of almost 4%
Mr Coelho believes that “after the first half of the decade, where most funds saw negative returns, most of them are now posting attractive returns considering the current scenario of 0% interest rates and volatility in the stock market.”
The recovery in property prices has allowed gains in this type of product. Open income funds have yielded an average of 3.94% over the last 12 months, according to the most recent data from the Portuguese Association of Investment, Pension and Wealth Management Funds (APFIPP) for May.
The average return for open-end capitalisation funds reached 2.49%. Despite this recovery, the total return for the last three years is close to zero.
The recent recovery helps explain the growth in investors’ interest in these products. The increase of the last 12 months has led to a growing number of participants in real estate investment funds. At the end of March, the latest data released by the Securities Market Commission pointed to 87,500 investors, the highest figure since the end of 2012.
Mr Coelho predicts that the number will continue to grow, “It won’t be long before we once again have more than 100,000 investors again.”
Overvaluation? “There are many prices.”
Rising real estate prices, especially in the residential market, have led to fears that a bubble is forming. The Bank of Portugal has rejected the possibility. Nevertheless, this month it warned that “price growth in the residential real estate segment has been particularly strong.” The banking supervisor detailed that “in the second half of 2017, very limited signs began to appear of overvaluation in the sector.”
However, Mr Coelho argues that “there are many real estate prices.” He says that “in this case, the Bank of Portugal’s alerts essentially relate to housing prices together with the banks’ increasing credit portfolios and the household debt ratio.” The executive at the fund that manages hundreds of millions of real estate assets admits that “there always exists the possibility of market corrections.”
However, he added that the existing signs point to “some cooling of demand and a brake on the rise in prices in the centres of Lisbon and Porto, while, on the other hand, there has been a continuous rise in prices in the periphery, where prices hadn’t risen so much previously.” Pedro Coelho also argues that “prices in the commercial market have not followed the housing market.”
Original Story: Dinheiro Vivo – Rui Barroso
Translation: Richard Turner