Politicians, commentators, and journalists discuss the issue and offer miracle fixes, yet there is little in the way of a concrete plan or vision. As a real estate professional, I am deeply concerned about this issue, not just because of its impact on the market, but because I believe in maintaining a responsible relationship with the community. Being in the real estate business is not just about profits, it is as well coming up with solutions for both local and international clients.

Portugal has been grappling with a housing shortage that has worsened over the last few decades. This is not just due to foreign interest in moving here or businesses looking to invest in local talent. The crisis is multifaceted, and it has been building up for years.

One major factor is the lack of affordable housing, combined with persistently rising real estate prices. With limited supply and few tax incentives to encourage investment in housing development, homeownership is becoming an unreachable goal for many citizens, especially younger people. The current supply of affordable housing is far below demand, with the rental market feeling the strain even more. This situation calls for creative solutions to increase the availability of housing.

This is where Real Estate Investment Vehicles (OIAIs), such as Real Estate Investment Funds (REIFs) and Collective Investment Societies (CIS), come into play. Regulated by the Portuguese Securities Market Commission (CMVM), these investment vehicles have the potential to reshape the housing market. As of June 2024, CMVM data shows that the combined value under management by these funds reached €14.8 billion—a record high. However, with better tax laws around rental income, this figure could triple, which would also boost the availability of affordable rental housing, much like what is seen in other developed EU nations.

OIAIs can attract both national and international investors, channeling much-needed funds into new residential projects or the rehabilitation of existing properties. These vehicles are particularly appealing to institutional investors, such as pension funds and insurance companies, who seek stable, long-term returns. However, the success of these investments’ hinges on a stable and transparent regulatory and tax environment, as well as the ability to show the social and economic benefits of each project.

Public-private partnerships (PPPs) also have a critical role to play in housing development, though they are often dismissed due to political ideologies. These partnerships combine public and private resources to create housing more efficiently and at a lower cost. Additionally, OIAIs could help introduce innovative construction methods to Portugal, moving away from traditional approaches that are no longer viable for today's demands. For example, modular construction allows for large-scale production of housing units at a lower cost and faster pace, particularly in urban areas where land is scarce, and demand is high.

Sustainability is another key element in tackling the housing crisis. By using sustainable materials and energy-efficient technologies, developers can create environmentally friendly homes, which also help lower maintenance and operational costs for tenants. At the same time, urban revitalization remains a critical strategy to increase the housing supply, especially in historic areas where many buildings are in disrepair. Unfortunately, inefficiencies in public services and local government often delay construction permits, hindering progress. If these bottlenecks could be addressed, we could see a significant boost in available housing stock, with the added benefit of preserving the cultural heritage of our cities.

OIAIs are well-positioned to lead the revitalization of these areas, drawing in capital and managing projects that convert dilapidated properties into valuable housing. Beyond increasing the housing supply, these investment vehicles can also diversify the types of housing available, addressing the needs of young workers, students, seniors, and low-income families. Some successful international models even integrate student housing with elderly care, where both groups benefit from lower costs and shared services.

The key to all of this is specialized management. OIAI management teams have the expertise to navigate the complexities of the real estate market, ensuring projects are cost-effective and efficiently managed. Recent technologies, such as remote monitoring and predictive maintenance, can further enhance operational efficiency, reduce costs for tenants, and improve response times to their needs.

To attract more capital into housing, appropriate fiscal incentives are crucial. A positive step was taken on June 12, 2024, when a new fiscal regime was approved for OIAIs investing in housing under the Rent Support Program. This initiative highlights the government’s acknowledgment of the importance of these investment vehicles in expanding the housing supply. However, more needs to be done to create additional tax incentives and regulatory support to encourage further investment in the sector.

Real Estate Investment Vehicles represent a vital tool in addressing Portugal's housing crisis. By mobilizing new investments, implementing innovative construction methods, and fostering a more integrated approach to housing development, these vehicles can make a significant contribution to increasing the supply of available homes. With the right policies and support, they have the potential to offer sustainable solutions to meet the evolving needs of the housing market.

Author

Paulo Lopes is a multi-talent Portuguese citizen who made his Master of Economics in Switzerland and studied law at Lusófona in Lisbon - CEO of Casaiberia in Lisbon and Algarve.

Paulo Lopes