Jll residential study by JLL

april 2016

RESIDENTIAL MARKET UNRIVALED DYNAMICS

TABLE OF CONTENTS

PORTUGAL PAGE NR.

05 PAGE NR.

CALLING CARD Portugal is located on the south-eastern edge of Europe and has approximately 10.5 million inhabitants.

THE DESTINATION IN EUROPE Portugal currently competes with major European tourism destinations. The main indicators and several awards leave no doubts.

PAGE NR.

07 PAGE NR.

DIFFERENTIATING FACTORS Safety and quality of life are some factors that make Portugal a “paradise” in Europe.

A FAVOURABLE LEGISLATIVE FRAMEWORK Programs like Golden Visa or Tax Benefits for Non-Habitual Residents have played a crucial role in the recovery of Portugal’s residential market.

RESIDENTIAL PAGE NR.

13 PAGE NR.

OPINION

PAGE NR.

Patrícia Barão and Rui Pereira da Silva.

IN NUMBERS

PAGE NR.

All indicators reveal the dynamics and the good performance of the sector.

A PANORAMIC VIEW The residential market reborn strong and very different than it was a few years ago.

LISBON ZONE BY ZONE Explore and meet the leading and most dynamic neighborhoods of Lisbon.

LEGAL AND TAX CONTEXT PAGE NR.

HOW TO PURCHASE AND HOLD A RESIDENTIAL PROPERTY IN PORTUGAL

RESIDENTIAL MARKET

INTRODUCTORY NOTE

WHY PORTUGAL? It is with great enthusiasm that we launch the first edition of our publication entirely focused on the residential market. Firstly, because it is the first large research project we publish in this segment, and secondly because the timing couldn’t be better, following JLL’s merger with Cobertura.

This fusion reinforces our position as the only ‘one stop shop’ company for national and international investors, and we dedicate this publication to them, providing a wealth of information on the market, trends and forecasts. This timing is also ideal because the residential market is currently enjoying its greatest moment, with urban regeneration as one of its main drivers. Thanks to amendments made to the urban lease law, thousands of degraded buildings in our cities have become interventional. And therefore today, we have developers from all over the world rebuilding the historic centres and changing Lisbon and Oporto’s urban landscapes at a steady pace. Buildings in ruins are being replaced by quality projects. Thus, life in our cities is being completely transformed, gaining unstoppable momentum, creating an energy that attracts both people and trade. Streets are reborn, as buildings are inhabited by Portuguese, as well as many foreigners from so many origins who, every day, buy homes in Portugal.

MANAGING DIRECTOR

PEDRO LANCASTRE

The residential market is currently enjoying its greatest moment, with urban regeneration as one of its main drivers.

24 different nationalities passed through JLL/Cobertura in 2015, from Brazil to China, as well as Iraq, Pakistan and Vietnam. Portugal is in vogue. And so it deserves to be. In the eyes of the international investor community, the country has had an exemplary performance, displaying transparency and credibility, and it has something not all countries can offer, namely a combination of positive attributes: safety, climate, cuisine, beauty and friendliness, which attract people and investment. We are hopeful because good things never go out of fashion. Unless they lose what makes them good. Provided those in government maintain their good sense, as well as fiscal stability, there is no reason to doubt that Portugal will continue on the fantastic course it is currently travelling, and that the boost in the residential market will remain during the coming years, thereby renewing our cities.

RESIDENTIAL MARKET

PORTUGAL

CALLING CARD Located on the south-eastern edge of Europe, Portugal’s entire south and west coast is bathed by the Atlantic Ocean. Spanning 92,000 sq km, it is considered one of the countries with the most amenable climate in the world, boasting an average of 276 days of sunshine per year. Portugal has approximately 10.5 million inhabitants, 55% of which are of working age, namely between 25 and 64 years. The population is concentrated mainly on the coastline and in the Metropolitan Areas of the principal cities, Lisbon and Oporto, with populations of 2.8 million and 1.8 million, respectively. The Human Development Index, which compares the country’s main development indicators on a global scale, is 85%, which is considered very high.

Economic/Political Context

Portugal recently suffered a period of economic crisis that lasted between 2011 and 2013. During this time, in addition to the negative impact on the main general economic indicators, the lack of bank financing had a dramatic impact on the real estate sector, particularly in the residential market. However, this scenario began to invert at the end of 2013 as a result of the austerity program that enabled Portugal’s debt to drop significantly. GDP growth went from negative in 2013 to 0.9% in 2014, with forecasts predicting a 1.8% growth in 2017. Likewise, the unemployment rate decreased significantly and is expected to have droped to 13.6% in 2015. Although

Global Position

Portugal is predominantly an importing country, exports have registered a significant increase, with emphasis on the following products: cork, wine, footwear and textiles. Politically, Portugal has a democratic regime. The population is characterised by a centrist political ideology, which is reflected in a stable political context.

Portuguese is the 5th most spoken language in the world.

Portugal is a member of several global and European communities and treaties, and is also one of the most globalised and peaceful nations in the world. It is part of the United Nations (UN), the European Union (included in the Eurozone and Schengen area), the North Atlantic Treaty Organisation (NATO), the Organisation for Economic Cooperation and Development (OECD) and the Community of Portuguese Speaking Countries (CPLP). The CPLP includes a total population of 273 million, 3.7% of the world population, making Portuguese the 5th most spoken language in the world (by natives).

RESIDENTIAL MARKET

DEMOGRAPHY

POPULATION DENSITY (inhab/sq km)

10.5 MILLION

Inhab/sq km ≤ 50 50 < Inhab/sq km ≤ 50 100 < Inhab/sq km ≤ 200

INHABITANTS CENSUS 2011

200 < Inhab/sq km ≤ 500 Inhab/sq km ≥ 500

RESIDENT POPULATION AGE PROFILE 0-14 YEARS 15-24 YEARS

15% 11%

25-64 YEARS

55%

≥ 65 YEARS

19%

OFFICIAL LANGUAGE

276,967,000

9 COUNTRIES

PEOPLE IN THE WORLD WHO SPEAK PORTUGUESE

PORTUGAL, BRAZIL, CAPE VERDE, GUINEA-BISSAU, SÃO TOMÉ AND PRINCIPE, GUINEA EQUATORIAL, ANGOLA, MOZAMBIQUE AND EAST TIMOR

CURRENCY

CLIMATE

TERRITORY

943 km 276 DAYS OF SUNSHINE PER YEAR

EURO

OF COASTLINE

RESIDENTIAL MARKET

PORTUGAL

DIFFERENTIATING FACTORS Portugal has been noted for the quality of life enjoyed by its inhabitants. Safety, Development, Health and Education, and by its unique geography (climate, as well as cultural, natural and urban diversity), are the main factors that make Portugal a unique paradise in Europe.

Quality of Life

Education

Portugal features on the rankings of best quality of life. The InterNations Survey placed the country in 5th position in its global quality of life index in 2015, standing out in the categories of safety, well-being, personal happiness and, once again, health. Lisbon is included in the BBC Travel Top 5 cities in the world where one can live better for less money.

Portugal also stands out due to the quality of its Education. There are many quality public and private schools in the country, although the private schools are mostly attended by the elite and generally have a better reputation than public schools. There are also several well reputed international schools in Portugal, mainly in Lisbon, Cascais and Oporto. Regarding Higher Education, numerous Portuguese universities are featured on international rankings. The Business Schools of Universidade Católica and Universidade Nova in Lisbon, are well classified in the Financial Times main international rankings. Lisbon University and Oporto University also stand out, and feature on the Top 500 of the Shanghai Academic Ranking of World Universities, as well as the Top 200 in Engineering. Thanks to the good performance and credibility of Portugal’s teaching institutions, along with the quality of life the country provides, the number

Health

Portugal is in 12th place in the World Health Organisation’s ranking, ahead of countries like the United Kingdom and Germany. Indeed, Portugal boasts several quality infrastructures, both public and private, and the National Healthcare System is available to all citizens. Lisbon has approximately 1/3 of the doctors practicing in Portugal, as well as 1/3 of the country’s research and development centres.

The InterNations Survey placed the country in 5th position in its global quality of life index in 2015.

of foreign students has increased, rising 74% in the last 5 years, thereby making Portuguese universities increasingly international. Technical Readiness

Portugal is also noted by the World Economic Forum as the 36th most competitive country in the world in the 2014-2015 Competitiveness Ranking, standing out due to its excellence in health and education, infrastructure, technological readiness, higher education and training.

36th

most competitive country in the world in the 2014-2015 Competitiveness Ranking

HEALTH

EDUCATION

LISBON

PORTUGAL

5 CITY OF WORLD WHERE

12 OF COUNTRY WORLD IN TERMS

EUROPEAN BUSINESS SCHOOL UNIVERSIDADE CATÃ&#x201C;LICA

YOU CAN LIVE LARGER BY LITTLE

OF QUALITY OF HEALTH SYSTEM

BBC TRAVEL

RESIDENTIAL MARKET

QUALITY OF LIFE

FINANCIAL TIMES EUROPEAN RANKING 2015

WORLD HEALTH ORGANIZATION

SAFETY

LISBON

PORTUGAL

6th CITY

11th COUNTRY

WEATHERWISE MAGAZINE

GLOBAL PEACE INDEX 2015

OF WORLD WITH THE BEST CLIMATE

EUROPEAN BUSINESS SCHOOL UNIVERSIDADE NOVA DE LISBOA

MOST PACIFIC OF THE WORLD

FINANCIAL TIMES EUROPEAN RANKING 2015

COMPETITIVENESS 1st PILLAR 12TH PILLAR

INSTITUTIONS

INNOVATION

2nd PILLAR

INFRASTRUCTURE

11TH PILLAR

3RD PILLAR

BUSINESS SOPHISTICATION

MACROECONOMIC ENVIRONMENT

4TH PILLAR

10TH PILLAR

HEALTH AND PRIMARY EDUCATION

MARKET SIZE

9TH PILLAR

5TH PILLAR

TECHNOLOGICAL READINESS

HIGHER EDUCATION AND TRAINING

HIGH

PILLAR

FINANCIAL MARKET DEVELOPMENT

PILLAR

LABOR MARKET EFFICIENCY

PILLAR

GOODS MARKET EFFICIENCY

LOW

Source: World Economic Forum

RESIDENTIAL MARKET

PORTUGAL

THE DESTINATION IN EUROPE Portugal is currently the recipient of several awards, and the country’s popularity is growing. Aside from the cultural diversity and unparalleled beauty, Portugal includes distinctive factors such as safety, an amenable climate, the cuisine and Portuguese hospitality, which give it enormous tourism potential.

Lisbon features among the top choices in global tourism, and it is easy to guess the reasons that make it so popular: history, tradition, contemporaneity, beauty, beaches, climate, gastronomy and charm, make the Portuguese capital a unique destination in Europe, and at very competitive prices. According to a survey conducted by the Lisbon tourism board

The growth of the tourism market, through the demand for tourist apartments, has had a highly positive impact on the residential market.

5.3

MILLION

Hospitality Guests Lisbon Region 2015

6.4% 2014 > 2015

in 2014, more than 60% of the tourists surveyed stated that their trip surpassed their expectations, and included Lisbon in their Top 5 recommended destinations to visit. This satisfaction is substantiated by the numerous international awards and commendations the city has received lately. The indicators speak for themselves, and all, without exception, have evolved positively. Aside from the 16% increase in overnights in 2014 and the 13% rise in the number of passengers in Lisbon’s International Airport, operational indicators also presented significant improvement. Hotel occupancy rates grew 9%, reaching 73% in 2014 and the RevPar was 57€ in that same year, representing a 14% rise in the hotel sector’s performance.

12.3

MILLION

Room Nights Lisbon Region 2015

6.7% 2014 > 2015

1st

position of Lisbon in the Leading Short-Break Destination Ranking (Travel Media Awards 2015)

2nd

position of Lisbon in the European Best Destinations Ranking (Best European Destinations 2015)

15th

position of a Portuguese Beach (Praia da Fábrica – Algarve) in the World’s Best Beaches Ranking (Condé Nast Traveller 2015)

MILLION

Passengers Lisbon Airport 2015

10.7% 2014 > 2015

RESIDENTIAL MARKET

PORTUGAL

A FAVOURABLE LEGISLATIVE FRAMEWORK There are currently two programs to encourage foreign investment that have played a crucial role in the recovery of Portugalâ&#x20AC;&#x2122;s residential market: the Golden Visa program and Tax Benefits for Non-Habitual Residents. Along with these programs, the incentive for Urban Regeneration and the amendments done to the Urban Lease Law in 2012 were also fundamental to foster the great drive we are currently witnessing, especially in the cities of Lisbon and Oporto.

Residence Permit for Investment Activity (Golden Visa)

A program launched in Portugal in 2012, based on legislation that has clear objectives, is easy to understand and simple to implement, which has been essential to its success. By investing in Portugal, this program enables non-European citizens and their family units to obtain residence permits for a period of five years, allowing them to circulate freely in countries in the Schengen area. Among the five investment operations foreseen in the law, two concern the purchase of real estate assets and represent the greater share in the provision of these permits, namely: the acquisition of real estate assets in an amount equal to or above 500 thousand euros and the investment of at least 350 thousand euros in the acquisition and refurbishment of buildings with more than 30 years, or located in areas that have been predefined for urban regeneration.

90%

of investment volume within Golden Visa program were in real estate properties

Tax Benefits for Non-Habitual Residents (NHR)

A more favourable tax regime for citizens who decide to establish their tax residence in Portugal and who have not received any income in the country for the last 5 years. The competitiveness of the Portuguese regime compared with similar regimes in other countries has resulted in important investments in the national real estate sector. The benefits resulting from the â&#x20AC;&#x153;NHRâ&#x20AC;? range from total exemption to the application of a flat income tax rate of 20%. The regime has no associated costs and only demands that the citizen remains in Portugal for more than 183 days, or that, regardless of the time spent in Portuguese territory, the applicant owns a permanent residence in Portugal at 31 December of the tax year in question.

Urban Lease Law

In order to normalise rents in the rental market, important changes were made to the Urban Lease Law at the end of 2012. This law enables rents to become free of constraints within a 7-year period (5+2), and updated to market values. The exception remains for tenants aged 65 years or above or suffering from more than 60% disability, but even these shall see their rents updated to amounts close to market values of 1/15 of the value of the property as determined by the Municipal Property Tax Code. This law, along with a special eviction procedure that enables leases to be terminated more quickly in cases of default by the tenant, has already started to produce results. Tax Incentives for Regeneration

A temporary regime applied to the refurbishment of real estate assets that ends on 7 April 2021. The urban projects included in this law are subject to a simplified licensing procedure and are exempt from fulfilling some technical provisions foreseen in the General Regulation for Urban Development or from minimum requirements concerning

RESIDENTIAL MARKET

energy efficiency and thermal quality. This regime is applicable to assets that are intended for total or predominantly residential use, and that are over 30 years old or located in areas that have been predefined for urban regeneration. The main tax benefits for private investors include exemption from Property Transfer Tax (IMT) and Municipal Property Tax (IMI) for a certain period, as well as a reduced VAT rate of 6% on the refurbishment costs.

Several foreign citizens, mainly French, have purchased a house in Portugal, attracted by the advantages of Non-Habitual Residents Benefits and also by the quality of life that Portugal offers.

RESIDENTIAL MARKET

RESIDENTIAL

AN INCREASINGLY DIFFERENTIATED MARKET Since 2013, Portugal has been recovering the confidence of international and national investors. With programs to encourage and attract investment now in their cruising speed – namely Golden Visa and the Non-Habitual Resident Tax Regime – Portugal has become one of the most attractive real estate investment destinations in Europe. At the same time, tourism is on the rise and has launched Lisbon as one of the top European capitals.

These two factors have driven and renewed the real estate market, and have forced developers to pursue concepts that had not been explored before. Strong demand has led developers to create projects designed purely for investment purposes, with tourist apartments and the Hotel Apartment concepts becoming commonplace, all with guaranteed returns and positioned for short-term rental. Another trend concerns the careful choice of layouts and finishes in regeneration projects, taking into account the new markets’ needs and preferences. The concern with a building’s style, the interior finishes, the offer of generous exterior spaces, high ceilings, kitchens that open onto living rooms and a greater number of suites in apartments, have become important factors. We have not yet reached the point where projects are completely customised for different nationalities, but residential projects have unquestionably started to include features that were unusual only 5 years ago. Over the coming years, developers will have to respond to these new demands from foreign markets, taking into

HEAD OF RESIDENTIAL

PATRÍCIA BARÃO

We foresee another year of great activity and consolidation of this sector, with the residential market becoming the driving force in the Portuguese real estate market.

consideration the different target profiles and adjusting the product mix to the investment goals of the diverse buyers: pure investment, second home (for foreign and Portuguese buyers), as well as personal and permanent residence. New concepts will also emerge, such as residences for students and seniors, private condominiums with differentiating services, which encourage a lifestyle that values the project’s interior spaces. Foreign investors continue to believe in the Portuguese real estate market, mainly in the Lisbon and Oporto regions, which creates a very interesting pipeline of residential projects to be launched in 2016, while the new developments launched in previous years have already almost completed their selling phase. Regarding the appreciation of Lisbon’s residential market, prices in the prime zones (Av. Liberdade and Chiado) reached approximately 10,000 €/sq m, which is still below the prices found in most European capitals. We foresee another year of great activity and consolidation of this sector, with the residential market becoming the driving force in the Portuguese real estate market.

RESIDENTIAL MARKET

RESIDENTIAL

LISBON IN LINE WITH THE MAIN EUROPEAN CAPITALS Over the last three years, Portugal has become one of the most attractive real estate investment destinations in Europe. This renewal came about mainly due to foreign investment, driven by a combination of the following factors:

1) Amendments made to the urban lease law, which facilitate eviction from buildings with rents that are unsuited to the market; 2) Programs launched to encourage and attract foreign investment, such as Tax Benefits for Non-Habitual Residents and Golden Visa; 3) Political unrest in certain countries, namely in northern Africa, making several European consumers seek other safer destinations for their vacations; 4) Difficult economic and political situation in several countries, such as Brazil, causing investors to diversify the location of their assets; 5) Slackening of construction licensing laws, enabling real estate projects to be placed on the market more quickly; 6) Large building stock in need of refurbishment and the respective implementation of tax incentives for Urban Regeneration; 7) Greater liquidity among investors; 8) Decrease in interest rates, making real estate returns more attractive; 9) Lack of definition of financial markets, making real estate investment a safer option; 10) Acknowledgement of Portugal as one of the best countries to live in, with special emphasis on safety, climate, cultural and

HEAD OF RESIDENTIAL

RUI PEREIRA DA SILVA

natural diversity, and a low cost of living. Therefore the market attractiveness brought new players to the domestic market, and we are currently witnessing a greater variety of origins, among both developers and final buyers, compared with the pre-crisis period. The growing demand for central and historic areas has exerted great pressure on prices. The new developments that emerge are positioned in a high market segment, striving to capture this important market niche as well as more active national buyers, who are also mostly positioned in this segment. Many of these developments are aimed for

short/medium-term accommodation, and are also positioned in a high segment in the tourism market, placing Lisbon in line with the major European capitals, where the centre is naturally more expensive. Regeneration in Lisbon’s historic zones began in Baixa and has expanded to other traditional areas, such as Santos, Cais do Sodré, Alfama and Madragoa. The regeneration area continues to broaden, including a growing number of zones in Lisbon’s centre. With the reduction of interesting building stock for refurbishment, the future will bring new developments on a greater scale, but we believe these will continue to target the prime market segment, especially in the riverside zones such as: Alcântara, 24 de Julho and near Parque das Nações, where some projects were suspended due to the economic crisis, but shall now finally be completed. Since most Portuguese consumers cannot afford buying in these central zones, demand will rise in the peripheral and suburban parts of Lisbon, thereby enabling new construction. Thus, we foresee that 2016 will be another year of great activity and consolidation of the residential market, driven not only by foreign investment, but by national investors as well.

RESIDENTIAL MARKET

RESIDENTIAL

A PANORAMIC VIEW The Portuguese residential market is traditionally characterised by house purchase. Easy access to credit, along with lease laws that were highly prejudicial to owners, meant that for many years, housing was predominantly acquired.

The residential market in Portugal experienced a boom in the 1990s and early 2000s, with mass construction ensuing, especially on the outskirts of the major cities. The crisis that took place in recent years altered that scenario, and financing became expensive and inaccessible to most Portuguese, leading to a dramatic drop in the market’s activity. However, at the end of 2013 and throughout 2014, there was a visible recovery in this sector, particularly in the cities of Lisbon and Oporto. Legal and tax regimes to encourage foreign investment, such as Golden Visas and the Non-Habitual Resident Tax Regime, were created to tackle the difficulties caused

by the crisis, proving to be a success and serving as a fundamental catalyst in the sector’s recovery. A major boom in tourism and the new tourist apartment trend have also had great impact on this market. Many tourists have changed their habits and prefer to stay in more authentic and affordable options in the cities’ historic centres. This type of demand is satisfied by tourist apartments, and we are currently witnessing the refurbishment of several buildings that specifically target this kind of use. Due to this new wave of demand, especially from foreign sources, and to the strong comeback of off-plan

house purchase, several assets are being refurbished or developed to meet these new trends, which had not been addressed in the national market before. Examples of this trend are the greater demand for units with en-suite bedrooms, the growing importance placed on outdoor areas and the increasing quality of finishes. All of these factors carry different degrees of prominence, making it crucial that developers define beforehand what markets their projects target: national or international market, for investment or own use, for second or permanent home.

BUY A HOUSE IN THE MAIN EUROPEAN’S CITIES How many sq m could you buy with 1 million euros?

420

242

203

140

LISBON

MADRID

BERLIN

ROME

GENEVA

PARIS

LONDON

Source: Global Property Guide

RESIDENTIAL MARKET

Many investors and developers are purchasing buildings for refurbishment in the historic centres of Lisbon and Oporto. The conversion into tourist apartments often enables higher returns than a merely residential use.

RESIDENTIAL MARKET

RESIDENTIAL

IN NUMBERS During the crisis period, the number of residential sales dropped significantly. According to data by the National Statistical Institute (INE), before 2011, the number of housing transactions in Portugal was approximately 30,000 units per quarter, dropping to an average of around 20,000 units between 2011 and 2013.

By the end of 2013, this downward tendency started to turn, when programs to encourage foreign investment began to take effect. In 2015, the market recovered in earnest, recording a quarterly average of approximately 26,000 units in the first three quarters of the year, representing a 32% increase compared with the previous year. Although the residential market began its recovery thanks to foreign demand, the national market has also played an essential part in this sector. Despite Portuguese consumers purchasing houses with their own equity capital in recent years, access to housing loans is gradually returning. According to information by the Bank of Portugal, which calculates the average monthly volume of credit provided by banks, approximately 1,500 M€ were granted per month during the pre-crisis period (2004 – 2008). In 2009, this volume dropped significantly, but it was in 2013, after Troika entered Portugal, that the volume bottomed out at only 161 M€ per month. 2015 marked the beginning of a positive evolution, with 334 M€ in credit granted each month for housing loans, representing a 73% rise compared with 2014. Exiting the financial adjustment program imposed by the

European Union in 2014 was extremely important, but the QE “Quantitative Easing” program implemented by the European Central Bank at the beginning of 2015 played a crucial role in the banks progressively providing access to credit, which has remained ever since. Indeed, bank loan conditions have become more beneficial. Since February 2014, housing mortgage rates have decreased, reaching 2.1% in November 2015, according to the Bank of Portugal. The average value of bank house valuations was also impacted by the economic crisis. The national average at the peak of the crisis dropped from approximately 1,200 €/sq m to values below 1,000 €/sq m. A reversal of this tendency has been taking place since the beginning of 2015, especially in the Metropolitan Area of Lisbon, which registered a new record value since March 2012, rising 4.5% compared with the same period the year before. Since the end of 2014, assets in Lisbon have been in the highest demand compared with other regions, with prices reflecting this dynamic and rising significantly. According to the Residential Information System (SIR), the average prices in the city of Lisbon rose 27% since the minimum reached

at the beginning of 2013. In an analysis of the highest market values, the average in Lisbon registered by the same entity is above 4,500 €/sq m, 18% higher than three years ago. If we focus on the “new” Avenida da Liberdade, of the projects that emerged in the last 2-3 years, JLL recorded an average sale value of more than 7,000 €/sq m, a clear indication of the dynamic currently taking place in the city. In the main zones of Lisbon characterised by JLL, where we find buildings that target an upper middle and high market segment, prime prices can range from 3,500 to 9,000 €/sq m. The time to sale also accelerated in recent years. According to SIR95, a house in the high market segment located in Lisbon currently takes an average of 9.7 months to be sold, while two years ago, this average was 14.1 months. If we analyse the sample of projects on Avenida da Liberdade mentioned before, of the approximately 250 apartments that emerged for sale in the last 2.5 years (although most of the offer only appeared during 2015), only 20% were still available at the beginning of 2016, with the large majority having been sold “off-plan”, a format that was non-existent during the crisis.

RESIDENTIAL MARKET

NUMBER OF HOUSES SOLD IN PORTUGAL

2014 VS. 2015

120,431

129,950

93,618

76,398

79,775

84,215

2010

2011

2012

2013

2014

2009

USED

58,681

77,467

2014 Q1 - Q3

2015 Q1 - Q3

+32%

NEW

Source: INE

GROWTH

EVOLUTION OF MONTHLY AVERAGE VOLUME OF HOUSING LOANS PROVIDED IN PORTUGAL

1,522 M€

1,465 M€

2004

2005

1,533 M€

2006

1,636 M€

2007

1,115 M€

778 M€

2008

2009

842 M€

2010

404 M€

2011

161 M€

2012

171 M€

2013

193 M€

2014

334 M€

2015

Source: INE

EVOLUTION OF ASKING PRICES IN LISBON (€/sq m) 4,750

4,569

+18% 4,250 3,750 3,250

3,144 +27%

2,750 2,250 2008 Q1

TOTAL

Source: SIR and SIR 95

2009 Q1

2010 Q1

HIGHER-SEGMENT

2011 Q1

2012 Q1

2013 Q1

2014 Q1

2015 Q1

RESIDENTIAL MARKET

RESIDENTIAL

LISBON ZONE BY ZONE Location, location, location! This is the real estate industry’s famous motto to emphasise that the location where an asset is situated is the paramount and decisive factor for those investing in this sector. And this concept takes on even greater importance when considering the residential market.

The activity we are currently witnessing in the residential market in Lisbon brought new opportunities to areas where, some years ago, it was very difficult to acquire a residence with the quality, convenience and comfort found today. This is the case, for example, of Avenida da Liberdade, the prime office zone and privileged location for the city’s luxury retail and 5-star hotels. The refurbishment of a wide range of buildings that is taking place on this artery has brought new prominence to the residential market here, with several exclusive projects being developed for housing. The Chiado/Santa Catarina, Príncipe Real/São Bento and Baixa Pombalina zones are also located in the city centre. The first is one of the most iconic and trendiest areas in Lisbon, featuring several restaurants, museums and the most dynamic high street retail in the city. Next to Chiado is Príncipe Real, also one of the most cosmopolitan residential districts in Lisbon, characterised by several large mansions and an increasingly dynamic, as well as alternative, high street retail.

The Baixa Pombalina and Alfama is the most traditional, historical and emblematic part of the city, extending from Terreiro do Paço to São Jorge Castle. Every day, hundreds of tourists stroll through these distinctive streets in the heart of Lisbon, passing through the famous Rua Augusta. The restoration currently taking place in this area has rejuvenated and brought life back to one of the preferred locations among international investors, especially those looking for residential income assets. But the central and tourist zones mentioned above are not the only areas worth mentioning; other zones are emerging and asserting themselves in the residential market. These are the areas we will analyse individually throughout this publication, Lisbon is gaining a new life, and today features on the map of global tourism, as well as international investors, who see the Portuguese capital as a unique opportunity to invest in residential real estate in a European context.

RESIDENTIAL MARKET

LISBON’S MAIN RESIDENTIAL ZONES

11 LISBON AIRPORT

PONTINHA OLIVAIS

AMADORA

CAMPO GRANDE COLÉGIO MILITAR

CIDADE UNIVERSITÁRIA

BENFICA

ORIENTE CAMPO PEQUENO

PRAÇA DE ESPANHA

SALDANHA PARQUE EDUARDO VII

MARQUÊS DE POMBAL

RATO

7 1

PARQUE DE MONSANTO

4 2

A2 SUL ALGARVE

SANTA APOLÓNIA

BAIXA

CHIADO

CAIS DO SODRÉ

25 DE ABRIL BRIDGE ESTORIL/CASCAIS

ALFAMA

TAGUS RIVER

TERREIRO DO PAÇO

AVENIDA DA LIBERDADE

CHIADO / SANTA CATARINA

PRÍNCIPE REAL / SÃO BENTO

HISTORIC CENTRE

RIVERSIDE

LAPA / ESTRELA

CAMPO DE OURIQUE / AMOREIRAS

AVENIDAS NOVAS

COLINA DE SANTANA

10 RESTELO / BELÉM 11

PARQUE DAS NAÇÕES

ESTORIL / CASCAIS

RESIDENTIAL MARKET

AVENIDA DA LIBERDADE This is Lisbon’s Central Business District, where several financial institutions and multinational corporations have chosen to establish their headquarters in Portugal. It is also the privileged location for the city’s luxury street retail and main 5-star hotels. The refurbishment of an extensive set of buildings taking place on this artery, one of the most central and important in Lisbon, has brought new prominence to the residential market with the development of several exclusive projects aimed for housing. This is one of the zones in highest demand among foreign investors, namely Brazilian, French and Chinese, due to the central location, prestige and proximity to luxury retail offer.

MAIN TARGET

ORIGIN: INTERNATIONAL USE: OWN USE Style: COSMOPOLITAN Segment: HIGH

USE: INVESTMENT Main Goal: CAPITAL GROWTH

PRIME VALUE

€/sq m 6,000 to 9,000

RESIDENTIAL MARKET

CHIADO / SANTA CATARINA This is one of the most iconic and trendy areas in Lisbon, with several restaurants, museums and the most dynamic high street retail in the city. The residential market finds its most coveted address here, with several refurbished buildings and plenty of alluring apartments that offer stunning views over the Tagus River, São Jorge Castle and the city, factors that make this one of the most exclusive zones in Lisbon, attracting numerous international investors.

MAIN TARGET

ORIGIN: INTERNATIONAL AND NATIONAL USE: OWN USE Style: COSMOPOLITAN Segment: HIGH

USE: INVESTMENT Main Goal: SHORT-TERM RENTAL

PRIME VALUE

€/sq m 5,500 to 8,000

RESIDENTIAL MARKET

PRÍNCIPE REAL / SÃO BENTO Characterised by several glamorous mansions and charming buildings, as well as a growing high street retail supply with a more hipster and alternative profile, Príncipe Real is also one of the most cosmopolitan and trendy residential districts in Lisbon. These are the qualities that have sustained a rising demand in this zone, not only for home purchase, but also for income assets. Traditional families, foreign and national citizens with an alternative profile, and investors in the short-term market, are those who live and invest in this area, one of the most desirable in the city.

MAIN TARGET

ORIGIN: INTERNATIONAL AND NATIONAL USE: OWN USE Style: COSMOPOLITAN Segment: HIGH

USE: INVESTMENT Main Goal: SHORT-TERM RENTAL

PRIME VALUE

€/sq m 4,750 to 7,500

RESIDENTIAL MARKET

HISTORIC CENTRE From Baixa to Alfama, this zone concentrates the most traditional, historical and iconic areas in the city. From Terreiro do Paço to São Jorge Castle, lots of tourists walk the distinctive streets in the heart of Lisbon every day, without missing Rua Augusta, considered “one of the most beautiful streets in the world” by the Spanish edition of Condé Nast Traveller magazine. The restoration that is taking place in this area is rejuvenating and bringing new life back to one of the favourite locations among international investors, especially those seeking a residential property for income purposes in the short-term rental market.

MAIN TARGET

ORIGIN: INTERNATIONAL USE: INVESTMENT Main Goal: SHORT-TERM RENTAL

PRIME VALUE

€/sq m 4,000 to 6,500

RESIDENTIAL MARKET

RIVERSIDE A central zone that has sparked great interest among young Lisbon residents and investors due to its short-term rental potential. The proximity to the river and vibrant lifestyle currently seen in this area is attracting a growing number of new and modern restaurant concepts which, along with a good public transportation network, will undoubtedly lead to this zone’s consolidation as a leading residential district in the medium term.

MAIN TARGET

ORIGIN: INTERNATIONAL USE: INVESTMENT Main Goal: SHORT-TERM RENTAL

PRIME VALUE

€/sq m 4,000 to 5,500

RESIDENTIAL MARKET

LAPA / ESTRELA This is considered one of the best residential areas in Lisbon and is associated with an image of great prestige and social status. This district is mainly in demand among Lisbonâ&#x20AC;&#x2122;s upper class, as well as some foreigners who live and work in Portugal. It is characterised by the presence of many embassies, mansions and luxury developments, several boasting views over the city and the Tagus River. This area offers every amenity for daily convenience and is marked by the presence of numerous private schools.

MAIN TARGET

ORIGIN: NATIONAL USE: OWN USE Style: FAMILIES Segment: HIGH

PRIME VALUE

â&#x201A;Ź/sq m 4,000 to 5,000

RESIDENTIAL MARKET

CAMPO DE OURIQUE / AMOREIRAS This is an extremely central and consolidated area in Lisbon. It is characterised by a very dynamic neighbourhood vibe, and is close to the popular Amoreiras Shopping Centre. The buildings are relatively old and typical of Lisbon architecture, with a maximum of 4 floors. However, the apartments inside these traditional buildings are completely refurbished.

MAIN TARGET

ORIGIN: NATIONAL USE: OWN USE Style: FAMILIES Segment: MEDIUM-HIGH

PRIME VALUE

â&#x201A;¬/sq m 3,000 to 5,500

RESIDENTIAL MARKET

AVENIDAS NOVAS This is one of the largest and most consolidated residential zones in Lisbon, and is well supplied with retail, services and public transportation. Given the size, this district is divided into several areas with their own distinct features. This large district comprise Bairro Azul, which is small but has a good offer of convenient amenities and accesses, and is located beside the El Corte Ingles department store; the Saldanha/Avenida da RepĂşblica zone, characterised by a residential and services mix; and the Alvalade/ Avenida de Roma area, which has a very traditional and dynamic neighbourhood lifestyle.

MAIN TARGET

ORIGIN: NATIONAL USE: OWN USE Style: FAMILIES Segment: MEDIUM-HIGH

PRIME VALUE

â&#x201A;Ź/sq m 3,000 to 5,750

RESIDENTIAL MARKET

COLINA DE SANTANA Located in the heart of Lisbon, this area has great potential for the residential market and should be one of the next areas to undergo regeneration. It includes one of the most multicultural district in Lisbon – Mouraria. With its alleys that wind along São Jorge Castle’s hillside, this zone has been the target of numerous urban regeneration projects.

MAIN TARGET

ORIGIN: NATIONAL USE: OWN USE Style: FAMILIES Segment: MEDIUM/MEDIUM-HIGH

USE: INVESTMENT Main Goal: SHORT-TERM RENTAL

PRIME VALUE

€/sq m 3,000 to 4,500

RESIDENTIAL MARKET

RESTELO / BELÉM For many, this is one of the best residential areas in Lisbon. The Restelo district is located beside the river, but away from the centre of the capital, and it is characterised by an offer of houses, impressive mansions and large sized apartments. This is also a preferred area for embassies and it has a vast offer of private schools that serve the families who live here. In Belém, a location that is a must among tourists, the museums, parks and proximity to the river are a great attraction.

MAIN TARGET

ORIGIN: NATIONAL USE: OWN USE Style: FAMILIES Segment: HIGH

PRIME VALUE

€/sq m 3,500 to 6,000

RESIDENTIAL MARKET

PARQUE DAS NAÇÕES This zone started to be developed by the end of the 1990s and is comprised of distinct areas destined for office and residential use. It is known for its modern architecture, as well as the green and leisure spaces located beside the river. Although this is not a central zone, it offers a good network of public transportation, services and retail, and is currently a favourite and very dynamic area among Portuguese families and foreign investors who value modernity.

MAIN TARGET

ORIGIN: NATIONAL USE: OWN USE Style: FAMILIES Segment: MEDIUM-HIGH

PRIME VALUE

€/sq m 3,500 to 5,000

RESIDENTIAL MARKET

ESTORIL / CASCAIS Situated outside the city of Lisbon, but with an exceptional location by the sea, this area started out as a seaside resort for the Portuguese royal family and quickly became a favourite among the nobility and upper bourgeoisie, who also decided to spend their summers in Cascais. During World War II, due to Portugalâ&#x20AC;&#x2122;s neutral status, this region turned into a refuge for European royalty, which finally consolidated it as the most glamorous district in the Greater Lisbon Area. From its large mansions to its super luxurious apartments, this zone is home to national celebrities and many foreigners who hold high positions in large multinational corporations operating in Portugal, as well as others attracted by the exclusive and unique lifestyle offered by this region, also marked by the presence of the main international schools.

MAIN TARGET

ORIGIN: INTERNATIONAL AND NATIONAL USE: OWN USE Style: LIFESTYLE Segment: HIGH

PRIME VALUE

â&#x201A;Ź/sq m 5,000 to 12,000

RESIDENTIAL MARKET

LEGAL & FISCAL

HOW TO PURCHASE AND HOLD A RESIDENTIAL PROPERTY IN PORTUGAL This chapter presents the main steps and costs to purchase and held a residential property in Portugal.

The information in this section should always be confirmed legally. The contents of this document shows the knowledge and experience that JLL has of the Portuguese real estate market and its interpretation of the law.

RESIDENTIAL MARKET

How Residential Property is held in Portugal

LEGAL STRUCTURES

TRANSACTIONS

LEGAL DOCUMENTS

Ownership Right

Freehold title: full and exclusive right of use, fruition and disposal of property, unlimited in time.

Horizontal Property/ Strata Title

Right of ownership of separated units, in a building and co-ownership of common areas of that building, in proportion to the relative value of each unit.

Surface Right

Right for a building on a plot of land, part or fully owned by a third party, temporarily or perpetually.

Asset Deal (most common for residential)

Direct transfer of rights over real estate property (done by a public deed). There are no restrictions for the acquisition of property by foreign or non-resident citizens.

Common steps

Before the Public Deed, the purchase process usually begins with a Reserve followed by a Promissory Purchase and Sale Agreement (CPCV). Reservation Agreement corresponds to a simple agreement between both parties, that includes a deposit. Promissory Purchase and Sale Agreement (CPCV) where the parties commit themselves to define the conditions of the future transaction of the property, namely: closing deadline, price and payment conditions, rights of first refusal, declarations and guarantees, breach, among others. CPCV usually stipulates a deposit made by the purchaser (generally it ranges between 20% and 30% of the purchase price), which must be returned in double, if the vendor cancels the sale. Public Deed, or authenticated private document: the moment when the property ownership is transferred. The transfer of the title must be registered at the Land Registry office within 2 months of the transaction (art. 8º c) C. R. Predial).

Property Tax Register “Caderneta Predial”

Register of the property in the Tax Authorities (document issued or updated at less than a year): Description of the property; ownership, charges, valuation information, identification, localization and other elements, holders and information on the current exemptions.

Land Registry “Certidão do Registo Predial”

Official Register of the property in the Land Register Office: Description of the property, ownership (all transfers of the asset), mortgages, encumbrances and/or other rights in rem. This document should be issued at less than six months.

Document certifying the Waiver of the Pre-emption Right

Document issued by the Municipalities where the property is located and/or by the Architectural and Archaeological Heritage Institute, when the Portuguese State have the Pre-emption Right.

Municipal Use Permit

The use permit is a document issued by the Municipalities where the property is located which defines the purpose for which the property can be used.

Technical Data Sheet

A document describing the technical and functional characteristics of the property.

Energy Performance Certificate

Document that evaluates the energy efficiency of a property and must be provided on the date of acquisition of the mentioned property.

RESIDENTIAL MARKET

PHASE

TAX

DESCRIPTION

Property Transfer Tax (IMT)

IMT, tax to be paid before the public deed, is charged on transfers for value of property rights. Residential properties: progressive rate, reviewed annually, between 0% and 6% on the highest value of the public deed or the official value for taxation purposes (Valor Patrimonial Tributário) of the property. There are some exemptions, as in the case of properties acquisition or that are object of urban refurbishment.

Stamp Duty

Stamp Duty, tax to be paid before the public deed, is charged at 0.8% of the value of the transaction and it is added to the value that serves as the basis of assessment for the IMT.

VAT

Exempt (the exemption may be waived).

Property Tax (IMI)

IMI is payable by whoever is the registered owner of the property as of the 31st of December of the year to which the tax relates. The IMI rate varies between 0.2% and 0.5% (urban properties valuated by IMI rules) of the official value for taxation purposes of urban properties (according to their location). These rates are annually increased twice their amount, if the property has been left vacant for longer than a year and increases three times more for buildings in a state of ruin. There are some exemptions, as in the case of properties object of urban refurbishment or if the property is considered as a permanent place of residence, with a tax registration value up to € 125,000 (exemption frame period for 3 years).

Stamp Duty

Stamp Duty is also charged at the rate of 1% on the ownership, or on the right to use or enjoy urban buildings, with an official value for taxation purposes equal to or greater than EUR 1 million.

Municipal Sewage Charge

Depending on the municipality. In Lisbon is 1/8 of the IMI rate and it is payable every year.

Residents and Non-Residents

The property income (annual rental value deduced by maintenance and upkeep expenses incurred on the property, including IMI) has a special tax of 28%. However, for residents in Portugal, they could include it in the global taxable income for taxation purpose.

Capital Gains

Taxable Capital gains: Difference between the Sale Value (higher value between register value in public deed and the official value for taxation purposes) and the Updated Acquisition Value (deduce of sale/ purchase costs and valuation costs). The earnings resulting from transfers for value of property rights used for own and permanent residence in a reinvestment situation (value of the realization, deduced of the amortization of possible loan for the property acquisition) in the following 36 months after the sale or in the previous 24 months before the acquisition, are excluded from taxation.

Residents

50% of capital gains are included in the global taxable income for taxation purpose.

Non-Residents

Capital gains obtained by a foreign investor on the sale of properties in Portugal are subject to a CIT of 28% rate.

ACQUISITION OF PROPERTY

OWNERSHIP

PROPERTY INCOME

PROPERTY SALE

NON-RESIDENT CITIZENS There are no restrictions for the acquisition of property by foreign or non-residents citizens. However some formalities must be fulfilled: • A Portuguese tax identification must be obtained. • Foreign citizens with their fiscal residence outside the EU must nominate a Portuguese tax resident (individual or a legal entity) as their legal representative to present before the Portuguese tax authorities.

Sales

Estate Agency & Lettings

International Agency

Investment

Land Sales & Acquisitions

Valuation

Research

Mixedâ&#x20AC;&#x201C;Use Development

Strategic Consultancy

Project Management

AMI 8654

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COPYRIGHT ÂŠ JLL IP, INC. 2016. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of JLL. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.

Cover photo: Alexander De Leon

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