The graying populations of most developed countries is a fact. The senior community, also known as baby boomers, is between the ages of 52 and 61. People are more active and in better health than previous generations, working and living for longer. As we undergo this paradigm shift, it's crucial for investors to analyze the real estate, healthcare and social needs of this new type of senior living, which is growing day by day, so opportunities can be secured and risks avoided.
With observers talking about the phenomenon of a senior tsunami, we may be looking at a huge business opportunity for investors. And Portugal has, potentially, an important role to play in this trend, as a result of certain characteristics and the fact it's distinguished as one of the best countries to retire abroad.1
'A great place to live'
Offering a variety of appealing factors, Portugal has been highlighted as a safe place to live, noted by the Global Peace Index as the third most peaceful country to live (ranked 3 out of 163).2 It has an appealing climate throughout the entire year and great weather. It also has an acclaimed public health system.M3 Last but not least, it offers special tax advantages for retired foreigners who choose Portugal as their home. For a period of 10 years, taxation related to IRS (personal income tax) on labor income is at a fixed rate of 20%.
Four prestigious locations are favored by the senior community as places to live. These are: Cascais and the Algarve, chosen by those looking for the coastline life; Alentejo, with its countryside vibe; Lisbon, Oporto, Coimbra and Braga, recognized as the most urban centers; and Douro, an amazing protected area and UNESCO World Heritage Site.
Considering these factors, it's important to ascertain which sectors of senior living will provide the strongest return for the investor. These retired seniors coming to Portugal – most drawn from the middle to upper class – are looking for independent living but with all the amenities they want close by. There's an obvious necessity to create services that best fit their needs.
A new segment in real estate
We are watching the birth of a new segment of the real estate sector, directed at senior housing properties. Related professionals need to acquire the skills to respond to this specific market of aging homebuyers, which first demands an understanding of their financial and social realities.
We must keep in mind that senior homebuyers in general are concerned with five fundamental points: safety, accessibility, downsizing, affordability and amenities. However, the most important message is that they reject the traditional elderly person's home.
When making the decision about where they want to spend the rest of their lives, and considering Portugal as their forever home, they share the same specific idea: to buy or to rent (long-term) a house where they can live but also having all kinds of amenities they might want at any given time, such as assisted living, skilled nursing facilities, mobility resources, healthcare services, and other high-tech services nearby.
Of course, this trend also applies to future Portuguese seniors, our own millennial generation. All of us will need to work through transformations in traditional concepts of senior living, since there's no structured sector for these new and more complex market demands: in healthcare, real estate, and more innovative and specific types of amenities. The concern should be to safeguard adequate high-end amenities, such as healthcare infrastructures and services, advances in technology and improved transportation networks that make a location particularity attractive to potential future retired residents.
In Portugal, we're noticing an emerging trend that can be considered one reason for increased interest in senior housing investment. Demographics and a gap in demand versus supply are creating the necessary conditions to invest in senior living. At this point, looking for the best operators is fundamental for its success as an investment, and this is only possible through crowdfunding, real estate investment trusts (REITs) or direct investment.
Although Portugal has one of the best public health systems,4 there's a lack of health services in certain geographic areas, particularly rural parts of the country, including specific infrastructures and healthcare professionals. With an aging population and recognizing that many retired foreigners have a preference for rural areas, it's crucial to create the necessary conditions to better assist senior living; there's no doubt a major focus should be in solving the shortcomings of our healthcare system.
Meanwhile, in January 2019, the Decree-Law 19/2019 approved the legal regime of the Sociedades de Investimento e Gestão Imobiliária (SIGI), which corresponds to a Portuguese version of REIT. This is obviously of interest to investors.
The SIGI's corporate purpose includes the acquisition of property rights, surface rights or other equivalent rights over real estate for leasing or other forms of economic exploitation, such as construction projects and rehabilitation of real estate, shop use agreements (within shopping malls) and space use contracts for office purposes. It also covers the acquisition of shares in other SIGI or in companies based in another member state of the EU or European Economic Area, as long as such companies comply with the main rules of the SIGI regime. SIGI also enables the acquisition of shares or units of participation in: Collective Real Estate Investment Institutions (incorporated under the applicable law, the Regime Geral dos Organismos de Investimento Colectivo) with similar profit distribution policies; and Real Estate Funds and Real Estate Investment Companies for residential lease purposes subject to the Law n. 64-A/2008, 102 article, with similar profit distribution policies.
The demographic trends and legislative developments described in this article are not only contributing to growth in a new segment of the real estate sector, focused on senior living, but also suggest the potentially favorable investment opportunities now possible in senior housing and even healthcare through Portuguese REITs.
"Investors need to analyze the real estate, healthcare and social needs of this new type of senior living, so opportunities can be secured and risks avoided."