Portuguese government to allow REITs

The Portuguese government will present a law proposal by the end of the year for the creation of Real Estate Investment Trusts  (REITS). The announcement to the market was made by the Deputy Minister, Pedro Siza Vieira at the first day of the Portugal Real Estate Summit, which took place in September 18thand 19th.

It is recalled that the Portuguese real estate sector has been lobbying for over 10 years for the introduction of real estate investment trusts which are commonplace in neighbouring Spain. The objective of the move is to bolster property product supply for the long-term rental market.

«These are trust companies that will be listed and designed to attract savings which can then be invested in properties for long-term rental»said the minister at the summit held at the Palácio Hotel in Estoril.

These trusts will only be able to hold properties which must be held in portfolio long term and must be earmarked for rental. «This doesn’t currently exist in Portugal», explained Pedro Siza Vieira. New to Portugal, these investment vehicles have been used in Spain for some time where they are referred to as SOCIMI.

In order for REITs to be applied in Portugal a tax and regulatory regime must be put in place which the Portuguese government intends to do by the end of 2018.

Original Story: Iberian Property \ Ana Tavares | 19/09/2018
Photo: Iberian Property
Edition: Prime-Yield

Portugal’s real estate market is “hot” says Nobel winner Richard Thaler

The 2017 Nobel Prize winner for Economics, Richard Thaler warned that Portugal’s real estate market was “heated”.

Speaking at the Vertex conference, which took place on September 18thin Porto, the co-author of the book “Nudge” which influenced President Barrack Obama, said it wasn’t yet clear if the next crisis would emerge from the real estate or financial sectors but warned that the real estate market in Portugal was “hot.”

«I think those who are paying little to get into Portugal’s market by buying property is running too many risks» he warned.

«I am an optimist by nature, which is why I am not going to predict that a catastrophe is knocking at the door, but it certainly could happen» he told journalists at the event.

Original Story:Essential Business
Photo: Time online
Edition: Prime-Yield

S&P: Portuguese housing prices go 9.5% up this year

Portugal’s housing prices should soar 9.5% this year, forecasts the rating agency Standard & Poor’s in its latest report about Europe’s residential market.

«Strong domestic and foreign demand, as well as tight supply, are underpinning strong house prices increases in Portugal», explains the report, highlighting the effects of such programs as the Golden Visa or the Non-Habitual Resident.

«We expect prices to rise 9.5% this year, but we forecast price pressures will gradually ease amid slower growth, the rising cost of borrowing, and deteriorating affordability», says the report.

Thus, according to this projections, prices should grow by 7% in the next year, 6% in 2020 and 5% in 2021. Over the first quarter of the year, the annual house price growth accelerated to 12.2%, from 10.5% in 2017. In Lisbon, the average value per square meter rose by 20% to €2,581. In Porto, this value was up 23%, reaching €1,379. Nevertheless, S&P stresses «that the market overall remains affordable, with the price-to-income ratio still 7% below its long-term average».

Original Story: Vida Imobiliária | Ana Tavares
Edition & Translation: Prime Yield

NPL worth € 780 billion hang over the European economy

Even though banks are maintaining efforts to clean up their balance sheets, a stockpile of nearly €780bn worth of non-performing loans (NPLs) still weighs on the European economy, according to the European Banking Authority (EBA).

The figure has fallen significantly over the past three years, partly thanks to regulators. But much credit should go to international distressed credit managers. They have made significant efforts to rid European banks of these bad assets and reward their backers with high returns. The European NPL market is up-and-running, and the ways in which yield-starved pension funds can get involved are multiplying.

Once a source of apprehension for investors, owing to their impact on the banking system, NPLs today are an attractive investment opportunity in the South European countries. The European bank bail-in regime, introduced in 2015, was also instrumental in this market’s development. It means, among other things, that banks have to take losses on NPLs before they can access public money to avoid bankruptcy. Indeed, a bank’s decision to write down or write off the value of a portfolio of loans is the starting point of any NPL transaction.

In theory, the process is simple. When banks are ready to dispose of a portfolio of NPLs, they negotiate with potential buyers. Once the deal goes through, the buyer of the NPLs employs a credit-servicing business to realise the value of the loans. The spread between the ask and bid price represents the return for the buyer. The buyer, however, assumes several kinds of risks.

Francisco Milone, partner and head of real estate for Europe at alternative manager Värde Partners, explains: «There’s a risk to the value of the assets that were used as loan collateral, which investors come to own once they enforce the loan. Then there is a legal risk, because you are betting on your ability to convert a loan into an assets, and you are making an assumption on how long it’s going to take you to go from being a creditor to actually owning the collateral. These two risks are tied to your servicing ability». “Finally, there is financing risk because in the majority of these transactions there is leverage involved,” he says.

For these reasons, NPL expertise lies firmly in the hands of alternative managers or funds with credit-servicing capacity and strong familiarity with local markets. In fact, most significant players in the market have partnered with or acquired a local credit-servicing business.  Värde is a good example, as Tim Mooney, its global head of real estate, says: «We have purchased or partnered with specialised servicers in these markets. If you don’t have that specialist skill set, you can’t compete, because you can’t really bear the risks associated with investing in these assets or really understand how to price them»

The difference between NPLs and other alternative credit investment types, such as direct lending, is that with the latter there is potentially more certainty about the evolution of these loans. This is because the capacity of the borrower to repay the loan has been tested, and plenty of data exists on the collateral.

Distressed credit funds are increasingly turning their attention towards UTP assets, according to Marco D’Arrò, founder and managing partners of Real Asset Partners, a London-based advisory business in the alternative assets sector. Banks often offer UTP portfolios following the disposal of NPLs, and existing buyers are often at the front of the line. So while the stock of NPLs is falling the opportunities are growing.

Original Story: IPE  |  Carlo Svaluto Moreolo
Edition: Prime-Yield

Brazil election poses risks for housing subsidy programms

Even as all major candidates in Brazil’s presidential election have expressed support for housing subsidy programs, the country’s October vote still brings risks for major homebuilders, a Moody’s executive said on Tuesday.

Airline profits could also take a hit if the election results hurt the value of Brazil’s real currency, Moody’s added.

Marianna Waltz, head of the ratings agency’s Latin America corporate finance team, said in an interview that no candidate was planning structural changes to Brazil’s popular “Minha Casa, Minha Vida,” housing program, which is key for homebuilders’ bottom lines.

But she said any deterioration in public finances following the election or a decrease in consumer confidence would leave the sector significantly exposed.

«It doesn’t seem that we are going to have material changes in the current regulatory framework, which is positive. That said – if the economy isn’t doing well, if there is a reversal in market sentiment, demand isn’t going to be there», she said. «In addition to that, if government fiscal accounts are not in good shape, maybe the policy framework is there, but in practice the money will not be there to be lent».

Waltz’s comments highlight risks to some of Latin America’s largest homebuilders. Real estate executives have sought to assure investors in recent months that any housing subsidy changes will be minor, though some analysts have flagged possible cuts post-election when politicians may have fewer qualms about cutting popular programs.

Brazilian go to the polls on Oct. 7 to vote for president, governors, and state and federal lawmakers. In the presidential race, right-wing Congressman Jair Bolsonaro is likely to face off against leftist former Sao Paulo Mayor Fernando Haddad in a tight runoff.

Original story: Reuters | Gram Slattery 
Photo: Governo do Brasil (
Edition: Prime Yield

Study: Brazil companies face shift to capital markets from banks

Brazilian companies will need to look to capital markets instead of traditional bank loans for a substantial portion of their funding by early next year, as stricter international capital rules pressure lenders to cut balance sheets, a study found.
Brazilian banks must comply by January 2019 with the new Basel III capital requirements, conceived after the 2008 financial crash to force banks worldwide to hold more capital.
The research paper, by the asset management unit of Brazil’s largest private lender Itaú Unibanco Holding SA, found that corporate borrowing through bonds and other debt securities will need to grow by between 2 and 4.8 times the current level by 2022 to meet companies’ financing needs as banks are compelled to cut outstanding loans.
As a result, Brazil’s corporate debt stock is likely to soar to between R$ 343 billion ($87.67 billion) and R$ 799 billion by 2022 from R$ 165 billion in 2018, the study found.
«Under Basel III, banks will turn to loans that require less capital expenditure, such as mortgages and payroll-backed credit, leaving companies to seek more financing in the capital markets», said Gerson Konishi, the Itaú Asset Management portfolio specialist who was responsible for the study.
In addition to requiring banks to boost their core capital ratio to 7% from 4.5%, Brazil’s central bank is also obliying them to set aside more capital for corporate loans. A loan to a large company is almost 2.5 times costlier to banks in terms of capital than mortgages, for instance, according to the central bank rules.
The situation will challenge Brazilian companies to get financing as the country’s capital markets lag not just developed countries but many other emerging markets. International bond markets are often expensive for Brazilian companies, which generally need to hedge foreign currency debts.
Bonds and equities sold by private companies comprised just 2% of Brazil’s gross domestic product between 2013 and 2015, a McKinsey study found, lagging countries such as Chile (6%), China (8%) and the Philippines (4%).
If companies cannot borrow through the capital markets, the economy could slow, the Itaú study found. The Basel III requirements are also likely to drive corporate borrowing rates higher if demand exceeds supply, according to the study.
Exacerbating the challenges, government financing sources like state development bank BNDES have also scaled back lending due to tight budgets.

Brazilian banks, including state-controlled lenders like Banco do Brasil SA, have already started cutting corporate loan exposure in favor of retail. Banco do Brasil’s corporate loan book shrank 3% over the latest year to R$ 133.8 billion.
In a glimmer of hope for Brazil’s capital markets, which have suffered mainly from competition with sovereign bonds with high interest rates, investment funds have boosted holdings in real-dominated corporate bonds, said capital markets industry association Anbima director José Eduardo Laloni.
Corporate bonds held by investment funds surged 18% to R$ 137.5 billion. That is still just a fraction of the roughly R$ 4 trillion in assets under domestic funds’ management, most of which remains in government bonds.
Laloni said growth in capital markets will depend on Brazil’s ability to keep benchmark interest rates and inflation low. ($1 = 3.9122 reais)

Original story: Reuters Carolina Mandl
Photo: ITAÚ
Edition:Prime Yield

Brazilian Banks repossessed 70.000 real estate assets since 2014

With high defaults in real estate financing caused by the economic crisis, the number of real estate repossessed by Banks has skyrocketed in recent years in Brazil. Since the beginning of 2014, the five major banking institutions of the country recovered R $ 11.5 billion in real estate due to lack of payment. A figure that corresponds to about 70 thousand houses and apartments, estimates the industry.

Nowadays, the five biggest banks in Brazil have a record volume of R$ 13,7 billion in real estate waiting in line for potential interested – including amongst them those units that were already in stock – a figure that grew 745% in four and a half years.

Banco do Brasil, Bradesco, Caixa Económica Federal, Itaú Unibanco and Santander balance sheets show that, together, these institutions had an average annual growth of almost R$ 2 billion in the volume of real estate repossessed between 2014 and 2017. The growth pace continues strong in 2018, and in just six months, banks took more than R$ 1.48 billion in homes and apartments from delinquents.

Leader in the real estate sector, Caixa, heads up this movement concentrating 70% of the total of repossessed units. In June there were about 47 thousand real estate assets from clients that, altogether, had a value of R$ 9.1 billion. In 2016, the total stock was less than half: 23 thousand units.

Same phenomenon is observed among its competitors, although with less intense pace. Since the beginning of 2014, Bradesco, Santander and Itaú totaled, each, about R$ 1 billion to this portfolio, while BB recorded the less expressive growth, with R $ 116 million in the period.

Original Story: /Fernando Nakagawa
Photo: Shutterstock
Edition and translation: Prime Yield

ECB will give euro zone banks extra time to solve their soured loan problem

European Central Bank supervisors will give euro zone banks extra time to set cash aside against their bad loans if their pile of soured debt is particularly high.
Last July, the ECB announced long-delayed guidelines aimed at bringing down a 721 billion euro pile of unpaid debt, mostly inherited from the 2008-12 economic crisis and concentrated in Greece, Cyprus, Portugal and Italy.
The guidelines were the result of a compromise among supervisors after an earlier proposal to set the same timeframe for all banks had met with resistance from bankers, lawmakers and even within the ECB itself, as reported by Reuters last month.
Under the new rules, the ECB’s Single Supervisory Mechanism (SSM) will set «bank-specific supervisory expectations» for the provision of non-performing loans (NPLs), while using benchmarks to ensure consistency.
«The bank-specific supervisory expectations are based on a benchmarking of comparable banks and guided by individual banks’ current NPL ratio and main financial features,» the ECB said.
Its aim «over the medium term» is to achieve the same coverage for old non-performing loans as is the case with new ones, for which banks have to provide in full.
No further detail was given.

Original Story: Reuters | Francesco Canepa, Balazs Koranyi
Photo: European Central Bank
Edition:Prime Yield

Novo Banco kicks-off the sale of a €1.75 bn NPL portfólio

Keeping its goal to reduce the weight of the defaulted credit in its balance, Novo Banco will carry out the sale of the largest Non-Performing Loans (NPL) portfolio ever in Portugal, according to Debtwire.
Valued at € 1.75 billion, the portfolio will be sold in two separate tranches. The smallest one comprises € 550 million of NPL granted to 54 companies, while the other is valued at € 1.2 billion, covering 62.000 companies and retail clients.
The bank led by António Ramalho has already begun sounding out the interest of potential investors, and the non-bidding offers are expected to be start coming in October, according to Debtwire. Alantra, KPMG and Morgan Stanley are the advisors of the Portuguese Bank.
Last June, the Novo Banco NPL ratio was 28.7%, a significant high figure but that is below the 32.1% recorded in June 2017.

Original Story: Dinheiro Vivo|Rui Barroso
Photo: Novo Banco
Translation and Edition: Prime Yield

Portugal: defaulted credit fell to 12.41% in March

According to the latest data released by the European Central Bank (ECB), by the end of the first quarter of 2018 the Non-Performing Loan (NPL) ratio within the Eurozone reached 4.64%, below the 4.83% recorded in December and the 6.23% from March 2017.
In March, the bad credit represented 12.41% of the total loans granted by the Portuguese banks. Even though reflecting a decrease compared to its 16.12% from March 2017 and the 12.96% recorded in December, the Portuguese NPL ratio still almost triples the Eurozone 4.64% average, informs the ECB.


Original Story: Agência Lusa in Observador
Photo: European  Central Bank
Translation and Edition: Prime Yield

Portuguese Banking Association against penalizing Banks with a NPL ratio above 5%

At a European level, there is a debate ongoing within the European Banking Authority (EBA) about penalizing the banks with a NPL ratio above 5% which already led to opposition from the Portuguese Banking Association (PBA).
Last june, the association representing the Banks operating in Portugal stated that «there is no economic foundation» to distinguish banks with a NPL ratio bellow or above 5% from the total credit granted, arguing that «there is any study that determines that is from this level of NPL that there will be an impact on financial stability to finance the economy».
The PBA even queries the choose of the NPL as a «distinguishing factor», considering the need to «take into account other risk-mitigating factors» such as the default credit coverage levels and the collaterals values what, states the association, are of «particular importance» for the Portuguese banks.
“Besides, the option for the ratio penalizes those banks that have been making a deleveraging effort, such is the case of the Portuguese banking sector. The NPL amount reduction isn´t adequately reflected by the ratio when it occurs in a context of total credit reduction” said the entity led by Faria de Oliveira.
PBA also called for measures to be taken by the EBA to take into account the differences among the banking systems of each European Union country, whether or not there is a market that allows the sale of default credit portfolios.
Moreover, warned, the imposition of an accelerated reduction of bad debt would lead to the “sale of such assets to prices below their economic value», which would mean the destruction of capital and the transferring of that value to foreign investors”.

Original Story: Agência Lusa in Observador
Photo: Milev
Translation and Edition: Prime Yield

Commercial Real Estate prices stable in the first half of the year

In the first half of the year, commercial real estate prices were stable in four of the most important Brazilian markets: Rio de Janeiro, São Paulo, Belo Horizonte and Porto Alegre, according to the latest FipeZap Commercial Index.
Rio was the city with the highest sales prices: R$ 10,427/sqm, while São Paulo led the way with the highest rents: R$ 43,18/sqm.
Looking into June, the top five Brazilian neighbourhoods for commercial sale prices were all in the Cidade Maravilhosa, with Leblon topping the list at R$34,478/sqm. In a distant second was Ipanema, where listings averaged R$24,115/sqm, followed closely by Jardim Botânico at R$23,524/sqm Rounding out the top five were Catete at R$16,041 and Flamengo at R$15,929/sqm.
Similarly, for commercial rental prices, Rio dominated with four of the top five highest average listings among Brazilian neighbourhoods in June. Again, Leblon easily sat atop the list at R$126.51/ sqm. Ipanema was next at R$82.83, followed by Botafogo at R$69.43 and Jardim Botânico at R$ 66.59/sqm. Closing out the top five for commercial rental prices  was Itaim Bibi in São Paulo, where prices averaged R$64.97/sqm in June.
Taking into account the last twelve months, commercial sale and rental prices fell slightly, -2.07 % and -3.06 %   respectively across Brazil.
However, both figures fell far below the accumulated inflation rate during the twelve-month period of 4.39 %, as calculated by the IPCA/IBGE (National Consumer Price Index/Brazilian Institute of Geography and Statistics).
The latest FipeZap Commercial Index also compared Brazil commercial real estate as an investment vehicle compared to lower risk alternatives, such as the CDI (Certificado de Deposito Interbancário, in English, Interbank Certificate of Deposit).
When compared to the CDI, a daily average rate of overnight interbank loans, those who have invested in Brazil commercial real estate have taken losses.
Over the last twelve months, the CDI has yielded a return of 6.8 %. However, according to FipeZap, owners of commercial real estate who leased their property were only able to gain an average return of 2.2 % during that period.
The FipeZap Index is prepared by the Economic Research Institute Foundation (Fipe) using data from the Brazilian Institute of Geography and Statistics (IBGE), in partnership with the Brazilian real estate website, Zap Properties.

Original Story: The Rio Times | Nelson Belen
Photo: Koblischek
Translation & Edition: Prime Yield

Caixa Ecônomica Federal boosts capital ratio with assets sales

Brazilian state bank Caixa Econômica Federal will use proceeds raised in a new joint venture with France’s CNP Assurances SA to boost its capital ratio. The news was advanced to Reuters by the bank’s Chief Executive Officer, Nelson Antonio de Souza.
Under this joint-venture, Caixa will sell CNP life insurance products in its branches, and the French company will pay R$ 4.65 billion ($1.13 billion) for a 40% stake in the new company.
As told by Souza, Caixa is exploring the sale of other assets, including lottery licensing unit Caixa Instantanea SA, part of its loan portfolio and real estate. After failing to sell Caixa Instantanea earlier this year, the bank intends to resume its sale effort by December.
The bank faced high delinquency rates after its aggressive loan book expansion unde the country’s former Workers Party government.
Souza also said that Caixa wants to grow its loan book in credit lines that require less capital, such as payroll-backed loans. ($1 = 4.1056 Brazilian reais)

Original Story: Reuters | Aluisio Alves
Photo: Caixa Econômica Federal/Rodrigo de Oliveira
Translation & Edition: Prime Yield

BVA to sell R$ 550 million portfolio of defaulted credit in auction

BVA Bank, which filed for bankruptcy in 2014, plans to sell further R$ 550 millions in NPL later this year.
According to Eduardo Seixas, partner from the business restructuring consultants Alvarez & Marsal, the auction will take place in October and has set an R$ 70 million as minimum bidding value.
Last year, BVA sold an R$ 2,3 billion NPL portfolio to Enforce, the credit recovery arm of BTG Group, for R$ 211 million. A sales price that was 14% below the minimum bidding value set up for that auction, which registered 80 bids.
«We believe that this time the completion between investors will be even stronger», Seixas said. «Its smaller dimension should attract an even higher number of potential buyers and there is also a higher percentage of property backed loans».
Most of these loans were granted to average sized companies, according to Seixas, that also revealed that the company built a data room were the potential buyers can access to further details.
According to Alvarez & Marsal, since 2014 the sales of NPL assets have already brought around R$ 450 million to the Bank’s creditors. The goal is to sell all the bank’s assets until the end of the year.

Original Story: Bloomberg | Felipe Marques
Photo: Morrison
Translation and Edition: Prime Yield