Lisbon, the perfect city to live
Lisbon is probably one of the best cities in the world for a global citizen to establish his base, the one that makes the world his home, traveling constantly from country to country, either for business or leisure. Alicia Vikander and Michael Fassbender, Madonna, Eric Cantona, Monica Belluci, as many others, are examples of global citizens who have chosen to establish their base in Lisbon.
Apart from these famous ones, there are many other kind of people that choose Lisbon to live for several reasons:
- Business people opting for Lisbon due to fast connections to central Europe, USA, Africa and Brazil. After all, Portugal assumes a centrality between Europe and America;
- Couples with children choose to move to Lisbon because of life quality, the offer of education and security. Lisbon has a large number of international schools at all levels, and is the 5th European country with more schools in the Financial Times Ranking of the Top 100 Business Schools. Portugal is the 3rd safest country in the world;
- Entrepreneurs choose Lisbon because it’s one of the fastest growing startup hubs in Europe because they find IT resources at lower prices than in Northern Europe because the biggest world’s startup event is placed in Lisbon- the Web Summit.
- Retired people move to Lisbon due to the mild climate, a top cultural offer (it is possible to watch some of the best classical music performers at the Gulbenkian Foundation, with 50% lower prices than in central Europe, exhibitions by the best artists), because the Portuguese like to receive foreigners well, gastronomy, and in life advanced stage, due to health care, public hospitals and especially private hospitals with a very good offer. Lisbon has one of the most advanced cancer treatment and research centers – the Champalimaud Institute, where there has been a big investment on continued care and nursing homes.
Why property prices don’t stop climbing?
This report focuses in Lisbon Urban Rehabilitation Areas (URA), and these can be seen as the city center in a broader sense. In these areas you can find most concentrated urban rehabilitation, which is allowing a renovate city through magnificent architecture projects that preserve the fascinating old traces of buildings equipped with modern facilities.
One of the most discussed issues today is the hypothesis that a real estate bubble is forming in Lisbon. In our opinion, the factors that explain the price increase are:
- Offer quality increase (“quality delta”): new rehabilitation projects have exponentially increased the supply average quality. Five, six years ago, URA building quality average was very low, there were many buildings in very bad condition, as a result of not encouraging renting law. With the 2012 renting law revision, rehabilitation gained a strong momentum, new buildings began to appear, and dilapidated apartments were replaced by historical character premium apartments. This is the main reason for the average price increasing: degraded apartments replaced by quality offer.
- Increasing tourism: The opening of the Lisbon airport to the low-cost operators has increased the number of flights to Lisbon, directed to the city break. This increased the number of tourists in Lisbon in a significant way, in an initial phase tourism budget that looked for alternatives to the traditional hotel offer, in particular in the historical districts of Lisbon, where the offer was reduced (Alfama, Castelo, Graça, etc.). .). This aroused interest in the Local Accommodation, which led to the complete transformation of the historical areas of Lisbon, probably exaggeratedly, which could harm their future identity (this is the subject of another discussion). This increasing tourism had a direct and indirect contagion effect on the level of commerce, catering, leisure activities, provision of sightseeing and mobility (eg, Tuk-Tuk, HypoTrip), cultural offer, among others. The city has modernized, has become more attractive for the tourists who visit us and also for the locals.
- International demand increase: In the eyes of international investors, 2011 crisis and the Troika country’s rescue, several measures were implemented that made the country more attractive for investment: the letting revision law that has unlocked the rehabilitation of the buildings in the historic center of the city, the Residence Permit for Investment Activities (also known as the Golden Visa), which at an early stage attracted investment from citizens outside the European area who sought access to the Schengen Area for themselves and their immediate family members, the Non Habitual Resident program that attracted many European citizens (in the end of 2016 there were 10.684 foreign citizens benefiting from this program), particularly pensioners, who invested in real estate (purchase or lease) in exchange for a reduction or exemption from income taxes. Currently, the demand is related to intrinsic factors of the country’s quality, already mentioned;
- Favorable International Environment: We live in a moment which there is more liquidity than good investment opportunities of return. Interest rates are at record lows, financial markets are starting to show signs of saturation, and real estate turns out to be one of the most interesting asset classes;
- Long-term investment: Initially, the focus was on Tier 1 cities (such as New York, London, Hong Kong), but today with the market flooded with excessive supply, the yields in these cities are no longer attractive, and investors have begun to turn to other geographies, and realized that in Lisbon they were able to have yields of 6% -7% and capital gains above 10% / year, so they quickly began to put Lisbon, and later Porto, on the investment map.
- Speculative Investment and Opportunistic Owners: a significant part of the investment was made through investment funds. The main problem in the Portuguese market is lack of liquidity. In case of reversal of the cycle, there will be some institutional investors who will seek to quickly get rid of some assets by pushing the market. On the other hand, there are owners who are taking advantage of the current time to speculate on the selling price of their assets. Without making any intervention of appreciation of their assets, they are asking for another 30%, sometimes 50% and up to 100% of the price they asked 2 or 3 years ago. This effect is also very evident in Porto. And this, of course, is worrying.
Market Outlook and Opportunities
So, what are our perspectives for the next years? We believe that the current expansive cycle can be maintained for another 2 to 3 years. It is natural that there is some slowdown in capital gains, because the delta of quality is less noticeable. From this far it is necessary to be attentive to the speculative effects in the offer of average and lower quality (where this effect is more notorious).
Stock markets have begun to show signs of saturation, and typically the real estate cycle is reversed 2 years after the end of the stock market cycle.
What can happens to who’s buying now? In our perspective, Lisbon continues to be very attractive for:
- Buying premium real estate for living: buying home to establish your base, because prices in the premium segment continue to be more interesting than in other European cities (value for money);
- Invest for long-term renting: buy-to-let, in particular long-term renting. The long-term renting offer is extremely scarce, and the yields are very interesting (5% to 7%). For a foreign investor, it is important that this investment is made with conservative leveraged (low exposure to credit), to reduce exposure risks when cycle reverses. It is particularly important to buy well, at fair prices, in order to maximize yields;
- Senior Residences: there is a shortage of residences for retired citizens and the yields are very interesting, the European population is getting older, and increasingly they are going to look for the southern countries to live their retirement;
- Students residences: As an example, a new campus of the Nova Business School of Economics will open, for up to 5,000 students in Carcavelos / Oeiras-Cascais, and there is a significant lack of accommodation for students in this area alone, not to say also in the areas of the largest universities in Lisbon. Lisbon continues to attract more and more international students, a move that should keep the pace in the coming years, and this offer needs to be strengthened, particularly at the level of high quality;
- Lifestyle Boutique Hotels: Lisbon is attracting more and more sophisticated tourism, demanding accommodation, looking for charming hotels in historical areas that offer a personalized service, integrated with the cultural offer of the city, where they feel home. And the existing supply is manifestly insufficient, both in Lisbon and Porto.
We hope this review can be helpful supporting your decision making process, and we are available to deepen any subject and advise on your investments.