Real estate startup launches new co-investment housing model in Lisbon
Propria, a new real estate startup with a unique-to-Portugal affordable housing model through co-investment aims to solve the problem of the current chronic shortage of relatively affordable homes in the Greater Lisbon area.
Lisbon has a chronic affordable housing shortage. Lack of space has combined with high property prices from speculation and demand to make it difficult, if not impossible for ordinary middle class families to buy in Lisbon.
And while supply becomes scarcer, demand is set to increase. In fact, in 2019 the property specialists PWC/ULI declared Lisbon to be the best city in Europe in terms of investment prospects and real estate development and emerging trends. According to them, the demands for real estate are going to be greater with a consequent upward pressure on house prices.
The success of Lisbon in attracting tourists and relocations from investors, companies and skilled professionals has also led to a huge increase in the price of real estate in the Lisbon area since 2015 which has made it harder for the middle classes to purchase a house in the city. Try and find a modest apartment for under €500,000 in Lisbon and you would be hard pressed.
But one local startup thinks it may have an answer to meeting demand from the Portuguese middle class. Propria Co-Investimento Imobiliário offers a new form of home buying with an innovative model of co-investment purchasing to help solve the city’s middle class housing crisis.
The founders, all Portuguese, are the management team António Carneiro (General Assembly President), Nishel Rajani (Board President), Hernâni Silva and Rui Coelho (Board members). They are backed up by Ashira Capital, GPA Advogados and LCHC Lino de Castro Horta e Costa (solicitors), CRIA+ Architectos and A Equipa (Branding). “Every business idea starts with a problem. We were trying to come up with a solution to the middle class shortage of affordable housing in Lisbon. Our first idea to solve the problem was the cooperative model” says Rui Coelho who made a name for himself over 10 years fronting the municipal council’s overseas business investment promotion body Invest Lisboa.
“We started by studying the model of cooperatives and understood that it was not appropriate for our times. It can be very risky and does not have a successful track record in Portugal. The result was that we designed a new model that we’ve called co-investment. That means instead of buying houses from a developer, they are co-investing in the project which will ultimately give them the right to buy a house at the cost price. In other words, the entire project is funded by the co-investors — those buying the homes” he explains.
It means that home buyers will be co-investing with Propria in a new apartment building and getting a home.
“We don’t have a profit margin because we are not investing as a traditional developer. The traditional developer has a profit margin because they invest and risk their own money” he continues.
Propria manage and detain the project, choose the location of the plot of building land, design the project (in this case an apartment block), in a pilot project which the co-investment company hopes to be the first in many in Lisbon and further afield in Portugal.
The co-investor chooses the specific apartment, puts down a 30% payment. Propria only starts work on the project when the 30% has been put up front by all of the investors, ensuring no cash is missing to execute the business plan.
Coelho says one mistake the cooperatives made was that sometimes they started a project without having all the necessary funds in place from the prospective buyers which explains why some projects ultimately failed.
When all the 30% down-payments are collected, the land is bought and the prospective buyer already owns a stake in the project.
The next step is that Propria approaches a bank for the finance to build the building. At the end, when the apartment block is completed, each buyer must pay the remaining 70% and receives the apartment. They can get a loan for part of the downpayment or for the outstanding 70% backed by a traditional mortgage. Propria expects to make a profit of around €145,000 or 1% from the €14.5 million investment. “We’re not worried about making a big return at this pilot stage. What is important is making sure the model works, the quality is there, the positive image Propria builds in the market and that the project sells. Then the model can be repeated elsewhere” Rui Coelho explains.
Different from a mortgage?
But is there a difference between this model and just going to a bank with a downpayment and applying for a mortgage in the usual way?
“The home owners get the apartment at cost cutting out the estate agent middle man” says Coelho adding that Propria makes its share through the management fee and a 1% profit margin.
Propria says it plans to scale the co-investment model as it has a no-risk advantage, a fixed margin and doesn’t have to invest in its own projects.
There are other innovative cooperative-style models in Europe which have proved successful, particularly for young professionals who need to move around from country to country or city to city whereby whatever they put into the cooperative housing association they can withdraw and put that cash into another property run by the same cooperative association which has a presence anywhere else in Europe.
“In our case, in the end, when the buyer receives the apartment, the house is theirs to do whatever they like with it with no strings attached. They can live in it, rent it or sell it” Coelho says.
“This is the advantage for the co-investors. The model is completely transparent, and the buyer knows all the costs and has all the information at hand” he stresses.
Rui Coelho says the second important fact is that the buyers are protected in each phase of the process.
“For us we have a fixed advantage. Everything is sold and we don’t need so much capital to invest. This is the comparison between the traditional model and or co-investment model” he points out.
Propria’s partner owns the land which is reserved for the project and will sell it for this project at fair market value when all the prospective homeowners have signed up.
So far, Propria has over 70% reserved in a building which will have 38 apartments and will proceed with the project — which already has pre-planning permission —by the end of June when the land must be purchased. The pre-sale contract-to-buy will be signed with the prospective buyers and work should begin from October with completion scheduled for November 2021.
“I think that we have a product that the market needs and this co-investment model is completely new in Portugal and works better than the alternative ones. Our model respects the property ownership culture here in Portugal” says Coelho.
Propria plans to scale the model to other suitable areas within the Metropolitan area of Lisbon, including the South bank and other cities in the second phase.
“I have to confess that if this pilot project goes well, we will aim to partner with big players, even with city councils or the State to answer these chronic affordable housing shortage problems” he says.
Rui Coelho stresses that the target market is Portuguese families but that the development is open to foreigners but will not be specifically aimed at the Golden Visa market. “We’re not going to China or anywhere else overseas to market these properties, or advertising them at international trade fairs or even using agents. The object is to provide them at the lowest sustainable price possible without compromising in quality” he insists.
The €14.5m project is located at Lisbon’s Lumiar district, next to the São João de Brito private school, the Lumiar Metro station, Parque das Conchas and Parque Oeste (16 hectares). A large supermarket, school and gyms are in close proximity with easy access to the North-South Lisbon axis motorway.
It consists of 38 apartments spread over 10 floors with typologies of: 10 two-bedroom (from 91 to 94 m2), 18 three-bedroom (from 127 to 146 m2), 9 four-bedroom (from 173 to 236 m2) and 1 five-bedroom duplex (271 m2) for living or investment. There will be two small shop units (40 m2 each) with the intention of finding reliable tenants which is important for the image of the project.
Some of the two-bedroom and three-bedroom properties can be sub-divided into two one-bedroom apartments or one one-bedroom and one two-bedroom apartments which provide an ideal solution for those who want to invest to rent.
All the open-plan apartments have a parking space, storage space, fitted kitchen within the living room space, veranda, air-conditioning pre-installation and rooftop solar panels.
The model has a fixed cost of land, projects and soft costs, but the final cost of construction (which will be tendered to front-line contractors) is still not fixed. The estimated final cost per m2 for the apartments ranges from €2,500 to €3,100 Euros, depending on the floor, unit type and position.
Text: Chris Graeme