Real estate developers in Portugal are being courted by German and Dutch banks, attracted by the property market boom and the healthy interest rates they can charge.
many European banks now are offering financing for projects in Portugal that have not got off the drawing board, or are stalled, due to the unavailability of finance from Portuguese lenders.
Companies looking for funding have welcomed alternative sources of finance from outside Portugal and the foreign banks like the spreads of around 3%, rather than the 1% they can earn in their home markets.
"There is a real desire from foreign banks to finance construction in Portugal", says Luís Lima, the president of Portugal’s estate agents association, APEMIP.
Lima sees as "positive" the entry of European banks into the Portuguese market, "For the health of the market, price equilibrium and even the reduction of speculation that unfortunately has started to emerge, it is important that there is new construction."
According to APEMIP figures, Portuguese banks are releasing just 5% of the credit they were throwing at the market before the crisis. The Bank of Portugal confirms that in December 2012 there was €19.98 billion on loan for construction and now credit to the proerty sector is at 16-year low.
Local banks still see construction loans in Portugal as high risk and, due to pressure on their capital ratios and the €30 billion in non-performing loans sitting on their books, they have had more difficulty in advancing money than foreign banks that are better run, fitter and leaner.
Lima adds that in addition to the difficulties of obtaining finance, the construction sector has shrunk dramatically, "The crisis saw 90% of developers disappear and the few left, which can be counted on the fingers of one hand, may have the capacity to use their own money but are not prepared to risk it.”
Reis Campos, the president of the Association for the Construction Industry and Public Works, says the interest from foreign banks is "a natural consequence of a real estate market that is consolidated and internationally attractive. If local banks do not have the capacity to respond to the challenges they face, it is normal for foreign banks to position themselves to attract new clients."
In 2001, 114,000 new properties were licensed and the sector employed 900,000 people. This market hit rock bottom in 2014, with just 6,785 new homes licensed.
The market is looking far better now, with 2015 and 2016 figures showing growth of 21% and 38% and the creation last year of 27,000 jobs in the sector.
In 2016, 11,344 new homes were completed and this year construction is expected to grow by 3.1%. "But 11,000 new homes is very little, just 10% of the volume of 2001," said Reis Campos.
The banks with the highest profile in the construction and real estate sectors were, before the financial crisis, Caixa Geral de Depósitos and Banco Espírito Santo.
Nowadays, it’s the Spanish banks that are supplying the credit but banks in Germany and the Netherlands also are looking at business opportunities in the rapidly expanding real estate market that has been boosted by a tourism boom which, in turn, is partly due to political troubles in other sunshine destinations.
Campos said there has been a boost at the top-end from Golden Visa property buyers and low interest rates helping younger and first-time buyers.
“Due to the attractiveness of real estate and the exponential growth of tourism, we are seeing a greater demand for housing, especially in the centres of some cities," says Campos who predicts a 28% rise in prices this year: "The demand for houses grew 20% in the first few months of 2017 and could reach 30% by the end of the year.”
