Investing in the Inevitable for Up to 47% Returns

If you are more than twenty years old, you have already witnessed some phenomenon of transformation of your city.

The neighborhood had a bad reputation. No one of their own choosing would choose to live.

Over time the city grew and became more expensive and people with greater purchasing power and more open-mindedness arrived – usually outsiders who don’t care about reputation.

After a while, I couldn’t even afford to pay less anymore. The site has been consolidated with good options for trade and real estate of better quality.

It happened in the neighborhood of my childhood, in Berrini, in Perdizes, in Brooklin in New York and in other places around the world.

It is a natural movement in places with demographic expansion and no economic problems. It’s inevitable. Those who can smell these changes have a full plate – of appreciation. The previously undervalued neighborhood is climbing to be more accepted and start selling at prices closer to traditional regions.

At this very moment, the Campanhã region is undergoing this transformation. Reputation precedes it. It was already considered unsafe and relegated to the background – remembering that 5 years ago it was the very expensive historic centre of Porto that had the same reputation.

The change began with the Porto City Council investing heavily. There are more than €50 million in the transformation of the Slaughterhouse, which will become an office for technology startups and cultural center and ends with the expansion of the train station and subway that will add a bus terminal.

I know, I know, I know, I know, I know. Nothing may happen, but the slaughterhouse contract has already been signed and the construction company is Mota-Engil, the largest in the country. It’s gonna come out of the paper.

Even if it doesn’t, the transformation is already underway. The private sector believes so much that it has bought land and buildings for rehabilitation in the region. In particular, there are 3 buildings under construction – in addition to the various buildings already restored – on the main street of Campanhã, and for the time being the only one recommended for investment, Pinto Bessa.

It is on this street that the Pinto Bessa Development is being built. It’s the biggest and most complete. It has an enormous façade that was only possible by the aggregation of several lands. A large facade is more valuable and it will be very difficult for someone to repeat the feat of buying so many neighboring lands.

The cool thing is that since the developer knows he’s a pioneer, he also knows he can’t charge much, so he has the lowest prices for properties with tourist potential in Porto. While in Flores and Allados the square metre is only €5,000, in Almada and Santa Catarina it’s €4,000, in Pinto Bessa it’s less than €3,000.

To be exact, the 1-bedroom apartment with 64 sq.m. and a further 12 sq.m. of balcony is priced at €175,000 or €2,734 per square meter.

I researched in 110 developments in the city and found no real estate with tourist potential with more price comrade. You can search at will that you will not find anything cheaper with this quality in a main street of the city of Porto.

The developer has more than 10 years of experience and the construction with a large Portuguese company is already underway. Delivery in 2019.

The ready apartment is expected to be sold for at least €3,250 per square meter on delivery. And in 2 years the region will be consolidated to have a maximum discount of 15% over Almada and Santa Catarina, which represents an increase to the range of €3,400 / €3,500.

Buying at the plant and selling near delivery the expected return on invested capital (ROI) is 31% in about 1 year or €33,000 (R$150,000) for the investment in T1. For those who expect consolidation, the return in two years is 47% or €49,000 (R$215,000).

The revenue potential in tourist property in the region is €22,000 per year with a daily rate of €75 and 80% occupation, which represents a yield of 12.5% per year, which is 25% higher than the average for the city of Porto.

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Author: Marcio Fenelon
Real Estate Investment

Disclaimer

The report reflects only and exclusively the personal opinion of the expert.

The study is based on publicly available information considered reliable at the time of publication.

The content contains estimates based on expectations that are subject to change and may not be confirmed.

The addressees shall make their own analyses and take the investment decision solely on the basis of their own judgment.

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