Developers debate cost-controlled housing development contracts at AmCham event

Portugal’s government has pledged to embark on a programme of building affordable housing for rent at controlled building costs.

And so it was fitting and timely that the Secretary of State for Housing, Patrícia Costa, was one of the guest speakers at a breakfast event organised by the American Chamber of Commerce in Portugal (AmCham) at the end of last month to debate ‘Housing at Controlled Costs’ – Challenges and Solutions for a Fairer and More Sustainable Society.

The event at Lisbon’s Sheraton Hotel & Spa was organised in collaboration with AmCham’s Real Estate Commission and sponsored by Arrow Global, Brightman Group, CBRE, EY and Nexor.

Patrícia Costa (Pictured) reminded that housing was an “essential property” that needed to be viewed in a pragmatic way as a product. She said that today housing needs were complex and diverse, and apart from the purely economic question, different profiles of housing needed to be considered including housing for the elderly, students, single-parent families, and employees sent to other parts of the country to work.

“It is essential to assure the legal and technical security of what we’re delivering, particularly the quality of the projects and balance in the way they are implemented, taking into account all those who are involved in the process”, said the secretary of State.

The government is keen to produce housing at reduced costs, streamlining the whole process, but without losing sight of the quality of the buildings which should assure adequate and sustainable conditions for several generations.

The government has a programme called ‘Construir Portugal’ (Build Portugal) which aims to expand the urban space available for new housing by reclassifying plots of land that will be earmarked for affordable and controlled housing, in addition to reworking the legal framework for land transition and a review of areas set aside for new build.

Patrícia Costa said that the time between investment and return needed to be shortened, streamlining processes and ensuring greater efficiency in the cycle from building to occupation.

The government plans to set up long-term credit lines with lower interest rates than currently practised by the market, guaranteeing a robust financial stability to support housing projects.

This includes supporting initiatives whether private, public, cooperative or public private partnerships (PPPs) whereby all cooperate in a collaborative effort.

There needed to be a structural rather than a temporary sticking plaster solution since handling out subsides, which to date has been the mainstay of supporting affordable housing, has not proved a long-lasting solution.

“We need a sustainable model where costs are reduced and people can pay for decent and affordable housing”, said the secretary of State.

João Moura, Partner & Head of Real Estate, Hospitality, Construction & Infrastructure at Ernst & Young (EY), said that EY had conducted a general study into the problem of housing in Portugal which stressed the need for a complex solution which was opportune and multi-dimensional with specifically earmarked resources.

It also clearly highlighted pressing supply problems, demand and investment, suggesting the creation of a Social Pact for the Construction Sector as part of a new paradigm in the housing market.

João Bugalho, CEO of Arrow Group speaking as part of a panel said there were barriers to building more housing at affordable prices, how Portugal compared with other countries faced with similar problems, the way the regulator behaved which often brought limitations and complexity to the process without accepting responsibility of any of the risks involved for developers and how to foster entrepreneurship, as well as innovation in the sector taking into account the current strict regulations.

João Moreira, CEO of Nexor, an affordable housing development company created by the Arrow Group and Grupo Imobiliário GFH, and has plans to build 2,250 affordable homes in Portugal by 2030, said it was interested in large-scale projects.

The developer currently has two large projects, one in Lisbon and another in Porto, for over 500 apartments.

“Our goal is to contribute towards to increasing the affordable housing supply in Portugal, providing modern homes that are sustainable, attractive and at competitive prices”, he said.

Fernando Vasco Costa, CEO of Vizta Expanded Living which has been operating in the real estate development market in Portugal since 2018 as Nexity Portugal and created the brand Vizta in 2023 aims to change the paradigm of real estate in Portugal, making homes more affordable by creating a supply of housing for different segments of the population using different formats.

It’s projects include the Flower Power III building in Leça da Palmeira near Porto, the Laranjeiras project in Lisbon, Pícua in Maia (Porto), Flower Tower Magnolia (Also in Leça da Palmeira), and a housing development in Alta de Lisboa.

“Our goal is to develop large scale projects for the middle and upper middle classes and affordable housing”, he said stressing that affordable housing needed the creativity of architects, engineers, and construction companies to find efficient solutions at controlled costs, maintaining quality in order to reach a public that ordinarily would otherwise not have access to housing.”

Fernando Costa suggested that there needed to be more flexible regulations permitting greater creativity while adding that planning permission licences were sluggish in Portugal with the company currently having 550 housing units in Lisbon still awaiting planning permission.

Not only this, there was a lack of qualified labour – most went abroad in search of better wages and more job opportunities during successive recessions in the construction sector in Portugal – as well as touching on tax issues including the impact of VAT. (The current Portuguese Government announced that it would lower VAT on new construction from 23% to 6%, in a measure from the “Construir Portugal” package that aims to have a major impact on resolving the housing access crisis in Portugal).

Carlos Fernandes, CFO of developers Casais Engenharia & Construção outlined how the company was currently launching its third off-site construction industrial factory in Portugal, producing modulated and prefabricated structures that could be assembled on-site and which was “transforming the construction sector in Portugal”.

“We have to build in another way and off-site construction is a solution to the lack of labour, reducing construction times, costs, and the impact on the environment,” he said.

Using an innovative industrial method, the company produces large concrete blocks that are later assembled on the building site.

“We are avoiding waste because we are building precise units on a large scale and this helps to mitigate the housing crisis with a construction method that is faster and more precise,” he said.

This method was particularly effective and efficient for affordable housing and students’ residences.

“We’ve got a lot of homes in the pipeline, but municipal councils can’t keep up with the planning processes and getting financing is slow,” he said.

Jorge Fonseca, founder of the BF Group – created in Toronto, Canada in 1983 with its HO set up in Lisbon in 1989, with a core business of direct sales and outsourcing of sales force services in areas such as telecommunications, energy, security, health plans, financial services and online lead generation, with the group also investing in Developing Real Estate and Senior Residences – said: “In the US we also faced challenges related to timelines and taxes on the sector.

“The government’s (policies), which is always the first to receive (in terms of purchasing land, taxes on construction, VAT etc.) has a direct impact on company liquidity.”

Victor Aleixo, Mayor of Loulé, a town in the Algarve, said that successive governments rollout of the Simplex programme, which aims to streamline and simplify housing development by cutting red tape and planning permission times, among other things, said Simplex had marked a watershed in speeding up the entire process on the local authorities’ side.

“The difficulties that the municipal councils have are to do with legislation”, he said explaining that councils often had limited staff to deal with planning applications and limited financial means which compromised their capacity to act.

“The public administration is under constant scrutiny, a daily and permanent suspicion that creates fears and limits decision-making”, he said.