The Housing Crisis in Portugal: Solutions and Challenges

Everyone talks about it, but it seems no one really cares about the problems we’re facing. I see journalists, commentators, and politicians discussing the issue and announcing miraculous decisions without a real vision or plan for the housing shortage in our country. As a real estate entrepreneur, I am also interested in social peace and a responsible relationship with the community. Being a real estate agent doesn’t mean just filling your pockets, but having ideas and solutions for both national and international clients.

Portugal is facing a housing crisis that has worsened over the past decades. This crisis is not only due to the interest the country generates among foreigners who want to live here but also due to companies wanting to invest in our talent. The shortage of affordable housing, combined with the persistent rise in house prices, has made housing inaccessible for many citizens, especially the young.

The supply of affordable housing is insufficient, and the demand for affordable rentals far exceeds the available supply. This context underscores the need to explore alternative solutions to increase housing availability. This is where Real Estate Investment Trusts (REITs), such as real estate investment funds (FIIs) and collective investment companies (SICs), regulated by the Portuguese Securities Market Commission (CMVM), emerge as crucial vehicles in improving the housing scenario in Portugal.

In June 2024, the value under management of Real Estate Investment Funds, Special Real Estate Investment Funds, and Real Estate Asset Management Funds reached 14.8 billion euros, a new record. With more attractive tax legislation, this value could be tripled, thereby increasing the supply of affordable rental housing, as practiced in most developed countries of the European Union.

REITs have the ability to mobilize both national and international investors into the Portuguese real estate market, facilitating the financing of new residential projects or the rehabilitation of existing properties, whether for sale or rent. Institutions such as pension funds, insurers, and other institutional investors often seek investments that offer stable and long-term returns, characteristics inherent to these types of vehicles.

However, the viability of these investments depends on a stable and transparent regulatory and fiscal environment, as well as the ability to demonstrate the positive economic and social impact of each project. Additionally, the creation of public-private partnerships (PPPs) can play an important role in financing and developing housing projects. These partnerships will allow the combination of public and private resources, promoting the creation of housing with efficient management and cost control.

Another crucial aspect where REITs can positively influence the housing market is in the implementation of innovative construction solutions, such as modular construction. This allows for the large-scale production of quality housing units, significantly reducing both costs and construction time. This approach is especially relevant in dense urban areas where the demand for housing is high and land is scarce.

The use of sustainable materials and energy-efficient technologies is vital for creating environmentally responsible housing. These factors, combined with proactive management of real estate assets, can result in more economical housing for users by reducing maintenance and operation costs.

Urban rehabilitation continues to be a central strategy in increasing the supply of available housing, especially in historic urban centers with degraded properties. Revitalizing these spaces not only contributes to increasing the available supply but also helps preserve the historical and cultural heritage of cities. REITs have the capacity to attract capital and manage these types of projects, allowing the recovery of degraded areas and their reintegration into the housing market.

REITs can also play an important role in promoting integrated housing. By diversifying products and investing in projects that cater to different population segments, REITs can contribute to creating more affordable housing for young workers, students, the elderly, or low-income families. This strategy can be achieved through the development of projects that integrate a mix of housing types accessible to different income levels, promoting the creation of more integrated communities.

The ability of REIT management teams to understand and deal with the dynamics of the real estate market is another differentiating factor to consider. Specialized and proactive management is essential to ensure the success of any housing investment project, optimizing projects, reducing costs, and efficiently using available resources.

The creation of adequate tax incentives is essential to attract more capital for investment in the housing sector. A recent example was the approval, on June 12, 2024, of Law Proposal No. 3/XVI/1, which created a special tax regime for REITs investing in housing under the Rental Support Program. This type of incentive demonstrates the State’s recognition of the importance of REITs in increasing the housing supply.

Real Estate Investment Trusts represent a very relevant tool to address the current housing challenges in Portugal. From mobilizing new investments in the sector to implementing innovative construction solutions, REITs play a crucial role in improving the housing scenario.