'VAT reduction in construction? Will radically change the housing situation'

It is very important to have a market with a lower tax burden, able to produce more economic products, more adapted to the main segment, the middle segment. Other segments are a bottleneck, very organized, professional, but the bulk of the market is in the middle segment.

In a report by journalist from avenue Aniceto Viegas lifts the curtain from the perfect/news about the first years of residential zabloc activity in the country - it has been in Portugal since 2015 - by also revealing information about the real estate that is already driving.

He points to the high taxation in the country, which, incidentally, is confirmed by several players in the industry. "A reduction in VAT on new build construction would make a huge difference. It''Sandwoods..

There are two other major projects on paper in Lisbon and Porto, representing investments of €250 million and €150 million respectively. In these cases, the secret to everything is yet to be revealed.

Avenue has been in Portugal since 2015. What is the company's activity report? Since 2015, evaluating the investments already launched and those about to start, we are talking about 17 projects, of which ten have already been completed. That's a total investment of around 990 million euros. And real estate is something that is planned, meaning it doesn't change from year to year, production doesn't stop, usually plans are made for three or four years and then we have to live in the middle of cycles.

Portugal is a completely different country. It's a market with little supply. It used to have''we were usually oversupplied because we were producing a lot of things at the same time. The crisis appeared, and we had to work with interest. This happened, so I think the market is healthier than before. Moreover, now we are in the opposite situation, with little supply.

Does that mean there is no equilibrium?

The segments we know best about, housing and offices, are producing a lot based on demand, meaning there is no history of someone having a lot of square meters to fill, which is great for the overall market. Because real estate developers are not suffering and are not stranded. And all the players around them, including banks, are also not at risk and are considered undesirable''debt.

To summarize, we first had a very centered vision on urban relocation, on the high segment, on luxury retail, and always with a focus on Lisbon and Porto and smaller projects.

I, as I said, is more aimed at the luxury segment ... Yes, it has a lot to do with the current demand. It's most of all foreigners, because the Portuguese have not been very active. It is always a matter of subtlety: because it is an activity that is planned for three or four years, we need to understand what will happen next.

In 2012, 2013 analysis verified the main interest only in foreigners to buy houses and price increases in the city center. Portuguese, on the other hand, preferred to live in newly built houses, away from the center. "Housing,''that the market needs has not been realized,' he adds. There is a critical shortage of housing, everyone is talking about it. The middle segment is asking, also young people, to have a place to live, but it has to fit a certain budget and to be able to pay for it. Here we are confronted with what the market demands and what we can offer and what we cannot deliver. We have to be very clear.

Beyond this stage, we have tried to invest on a larger scale and also diversify into the office market. In the past the projects were smaller, urban redevelopment and high end retail in the city center, today they are larger, with offices and residential not only in the high end but also in the mid to high end. We are not at a purely mid-range' right now'segment.

Is the idea now to invest in locations other than Lisbon and Porto? "

We are very fond of urban centers. We have one exception, Sandwoods in Cascais, but that is also a high segment. It's the opportunities that have emerged that we have capitalized on. What does the next three years show for the market model, for example? There is what the retail market needs and what we are able to offer. You can see that real estate is lacking by all counts. The middle segment will very much ask, and young people too, for there to be housing, however, it has to fit a certain budget and there has to be the ability to pay for that housing. This is where we find ourselves with what the market wants and what it can offer. We're making very clear conclusions, it''impossible.

There's a lot of taxes being lost. O Rentabilizing the land could be a good solution to increase supply?

The government could create an exchange, It is not worth waiting on segments, because the market could well organize itself. And then it's always the law of supply and demand. If there's a segment of the market that continues to be stable, it's upper-end housing, right?

Yes. We have a tendency to say that this is a segment for foreigners, it is not. It is also a segment for the Portuguese, fortunately. The Portuguese make up about 60% of our customers on average. In terms of foreigners, we should mention Brazilians, who have always been active but have lost share. Apparently our activity in the beginning was around 40% and now it's around 20%. Recent events, in''Particularly the emergence of the Americans, it's also worth noting that they were not present in the market.

The end of gold visas and the RNH, for example, could in some ways scare these investors away? "

This is a very complex analysis. It was a proposition that was created and very important for us to sell the product. We had too much of an offer that needed to be placed. They were two very important tools at the time [2009 and 2012]. Today it would be an advantage, a positive aspect. We will only know in the long run whether or not it will have an impact.

The ideal solution would be to combine the two 'worlds' - keeping these tools and, at the same time, increasing the supply of middle-class housing? "

Definitely, but it's complicated. We'll test it. But certainly the middle/high and high segments are still active and we continue to want to stay in them.

Do you think that the current situation characterized by high interest rates, for example, will not have a strong impact on the segment''luxury?

In the composition of our products that we operate in, which are the mid/high-end residential segment in Porto and the high-end in Lisbon, we have not felt a decrease in sales and we have not seen a decrease in prices. When it comes to the office market, we have also seen very active activity in recent years. We have just completed 100% drawdown of EXEO Office Campus in Parque daseni (Lisbon). Aura and Echo are already 100% occupied by BNP Paribas, Lumnia remains to be finished, and the last block of the second floor is occupied today (October 18, 2023). But I can't give more information (laughter).

Talking about offices, if there was more supply, more companies would come to Portugal. Do you agree with that point of view?

If you look at the transaction figures in Lisbon from January to August, we are talking about''which we have in Lisbon, has dragged on unnecessarily. The idea was to get it done in two years. Lisbon City Hall had a lot of bureaucratic delays. Nevertheless, and to be fair, we have recently noticed a desire to speed up the processes. It's not speeding up, it's at least not accumulating more delays. Over the past two years, this has been hard and is really affecting the final price of the property. At this stage A very organized city with very predictable processes, is Porto. Because the delay has an impact on the price, and we can understand it: every year the delays are 500 euros per square meter, on average. We have delays of two years, it's 1,000 euros per meter, but assuming nothing happened along the way. Two things happen in the process''.: there is an increase in construction costs, which is reflected in the final price, and the lending rate, which hits not only the end buyer, because everybody in the value chain has turned to bank lending. That's driving up costs. I would say it's a very negative effect of administrative delay.

Not to mention the other aspect - predictability. Contingencies certainly arise in our business and we have to be able to deal with them, but to say I'm investing today and I'll get a return on investment in three years is one thing, but to say maybe in five or six years is another. That's terrible.

Talk about the Habitação Plus program and the state budget for 2024 (OE2024). Do you think the government could have gone further,''Especially cutting VAT on construction?

The market has been very critical of the Habitação Plus program - and with some correctness. It's not all bad. In the case of licenses, there is a great desire to simplify processes and this, if applied, will be a revolution because it significantly reduces the timeframe. I would say that's an extremely positive aspect of the program. We'll see how municipalities implement this new law. The second interesting point is that the conversion of land for housing is automatic if it has an industrial or office use, no need to change the master plan, etc.

Now they could [the government] and they could also go further on taxation. Portugal has an excessive tax burden on housing. Cutting VAT on''new construction would change the situation dramatically. This, by the way, is a valid solution in other countries, right? I don't know the feedback from all the countries I have worked in, Spain and France, VAT is deductible, it is not a cost. So it would certainly increase the supply of houses on the market? Of course it would. And it creates competition. The thing you can't do to a private entrepreneur is competition, it will force him to transform, to fight. Not indoctrination, barriers ... It doesn't solve, it discourages.

Talking about competition in real estate, was it fierce competition?

Finitely. It was important to have a market with a lower tax burden in order to produce more economic products, more tailored to the mainstream''segment, which is the middle segment. Other segments are bottlenecks that are very active, professional, they are well organized, but the bulk of the market is in the middle segment. If there was an opportunity to move from the mid-high segment to the middle segment by revising the taxation, we would do it. There is a lot of business here and what is needed is to expand the supply. That is the way to change the market.

One thing seems to be certain: Avenue has taken root in Portugal!"

We have a portfolio of about 1,300 apartments, of which 500 are done or in the final stages of completion, and 800 to be done. And in terms of the office market, we have about 97,000 square meters, of which 70,000 square meters are ready, and 27,000 square''meters should be fulfilled. I would say there is no doubt about it.