How the Impact of Rising Construction Costs Affects Portugal’s Growing Real Estate Market 

Portugal---Properties

For several years, Portugal’s real estate market has been as pleasing as the country’s sea breezes and mountain vistas. A constellation of entrepreneurial magic and government foresight created a Portuguese real estate boom whose growth has remained unabated until recently. But like most of the globe, Portugal now warily eyes rising construction costs, wondering if the increase of materials costs, from (p)lumber to steel, will slow or reverse anytime soon. 

The low-interest rates the European Central Bank (ECB) deployed to stimulate the post-Great Recession economy served their purpose for euro-linked countries. The lowered rates certainly pepped up the economy on Portugal’s sliver of seaside turf. This factor, paired with a surge in tourism, led to a boom in real estate development and the restoration of historic buildings. Real estate developers, such as Portuguese entrepreneur Luis Horta e Costa, created modern spaces behind the unchanged facades of historic buildings during this renaissance period of development.  

The Portuguese government’s Golden Visa program has also contributed to the success of the country’s real estate sector. Since its inception in 2012, this program has allowed foreigners to gain residency and tax benefits by purchasing a property. Rising construction costs have recently thrown real-estate developers a curveball even while demand remains constant.

” But people are always talking about Golden Visa and it was really important in the beginning as a starter to put Portugal in the map, but in terms of sales it didn´t represent more than a small part of the market.

We can look at this as an indicator that the market is now more stable and mature and Portugal became, after this factors, a real investment destination!

The most important environment for investors is to keep the rules in long term basis.” 

Luis Horta e Costa Discusses Construction Costs

In 2016 Luis Horta e Costa, a Portuguese real estate expert, cofounded Square View, a real estate property developer and asset manager, in Lisbon. The company focuses on developing and refurbishing properties in the finest neighborhoods in Lisbon and the surrounding areas. It also develops properties in emerging hotspots, such as the revitalized neighborhood of Intendente. 

Like many successful entrepreneurs, Horta e Costa considers real estate a historically safe market. His investments tend to be in upscale locations and possess the potential for future appreciation. But due to current market and political forces, it is the right time to review the risks. 

 “Real estate is like gold,” Horta e Costa says. “It’s always a safe market. The main impact I see in the current real estate market is the increase in the prices of construction costs (and the long and painfull burocracy). Due to (both this events ), the impact we are seeing is not good.”

According to the New Housing Construction Cost Index (HNCI) released in February 2022 by Portugal’s National Statistics Institute (INE), rising construction costs are primarily due to the cost of materials and labor. The construction materials and labor prices increased by 1.7 percent and 2.9 percent, respectively, year on year.

The costs of building new housing rose 8.5 percent in November 2021 alone over the same period in 2020. In October 2021, labor costs contributed 2.3 percent to the year-on-year change, and the materials component contributed 5.1 percent.  

“The middle market will feel the impact because the interest rates will rise,” Horta e Costa says. “So, the Portuguese middle-income families will have more difficulties buying an apartment because they will pay more.”

Square View keeps to its strategy regardless, focusing on the demand for Portuguese real estate that seems to roar along unabated. 

“If we develop a project in Portugal that is around 15,000 square meters, that is big for Portugal, but for the market, it is( quite small),” Horta e Costa says.  “So, we must understand the size of the market in Portugal and the demand all around.”

Networking Helps in a Downturn, says Luis Horta e Costa

Being a Portuguese insider helps. At Square View, Horta e Costa focuses on investor relations and the new investment opportunities pipeline. With decades of experience under his belt – and more than 250,000 square meters produced in real estate projects – he has seen it all. Before founding Square View, he spent 35 years at Espírito Santo Group, where he helped create a thriving private investment platform. He was also cofounded Habitat Investment, a Lisbon-based real estate investment company.

Horta e Costa knows that when a market is in flux, one must be strategic. One factor he cites is knowing the local construction companies and discerning(how they are and who they are and to envolve them from the beginning to attract them to new building projects.   

“We are in their hands now,” Horta e Costa says. “They do us a favor to build for us. So, the network is always important, and I think we are very good at networking.”

“People don’t believe that friendship exists in business, but it exists,” Horta e Costa adds.( “If you have an excellent friendship with the company (team), and they appreciate the way you work, maybe they will prefer to work with you rather than to work with a huge promoter.” )

Give Customers What They Don’t Know They Want

Luis Horta e Costa says keeping a balanced team at Square View is the key. He is an entrepreneur who moves in both directions, creative and managerial. 

“Sometimes I put my feet on the ground, sometimes I fly,” he says. 

Horta e Costa enjoys real estate because it allows him to produce structures that improve Portugal’s landscape. He says he gets a “gut feeling” about construction projects while his colleagues stay in the lane with the calculators and rulers. 

“Sometimes my gut feeling doesn’t go with the numbers, so we have to change,” he says. “But they have an excellent approach for that. They learn something from me, and I learn a lot from them. We cannot always fly in this business. We might have a() project that is beautiful but not commercial. It isn’t always the gut feeling; it is the reality.”

Horta e Costa explains that the trick is to understand what the market wants while introducing something new. Sometimes customers don’t know what they want, despite having all the money to purchase it. Knowing this, the team at Square View works with architects and interior designers to create fresh takes on Portuguese developments. 

“If you give the market what they want – with the slice of good taste – they love it,” Horta e Costa says. “Our business is about giving people what they don’t know they want. But as soon as they see it, they love it.”

LEAVE A REPLY

Please enter your comment!
Please enter your name here