How the end of Portugal’s Golden Visa affects real estate

On February 16, the Portuguese government announced the end of the Golden Visa, a decade-old program designed to incentivise international investments into the country’s real estate. Over the years, the program has seen a myriad of complaints and controversy, as well as large amounts of money invested into the Portuguese economy, particularly the real estate area.

The involvement of governments in the residential market in Southern Europe was a theme highlighted at GRI’s annual Chairmen’s Retreat in February, with heads of real estate pointing out that politics is intervening to maintain affordability. To see more highlights from the Chairmen’s Retreat, download the short paper with the summaries. 

The Impact of the Visa 

The Golden Visa program was introduced after Portugal’s financial crisis and a bailout by the IMF and the EU in 2011. According to Portugal's Immigration and Borders Service, the country has benefited from €6.8 billion from the program, with 90% of that money going to real estate. Chinese nationals accounted for nearly half of the permits granted, and the scheme was also popular with individuals from Brazil.

Before the end of the scheme, real estate investors could acquire a visa through the purchase of real estate for €500,000 or more, or real estate that is over 30 years old/located in urban regeneration areas for refurbishment for €350,000 or more. One could also invest in the reconstruction or refurbishment of national heritage through public institutions etc. 

Investors could also invest €500,000 or more in investment funds or venture capital funds for companies, with some guidelines about the age and location of the funds, or the creation of a company and 10 or more jobs in the country.

A total of 11,535 visas were granted in 2022, with 10,593 of them related to the acquisition of real estate, totalling €6,041 million. €534.1 million of that total corresponded to the purchase for urban rehabilitation, with 1,485 visas granted. Only 22 were granted through job creation, and 4 of the companies created through this path have already been liquidated; similarly, investment funds made up a very small percentage of existing visas.


 

‘Mais Habitação’: drastic measures?

The plan, announced February 16th, has the government intervening directly in the market with the end of the golden visa, as well as rent increase limits and the penalisation of the possession of empty houses in addition to new licences for Airbnbs and short-term rentals, except in rural areas.

The ‘More Housing’ package comes on the back of Portugal’s housing problem and the goal of acting to combat all of its dimensions. Prime Minister of Portugal António Costa says that "no one can ignore the impact on the housing market, whether from interest rate increases or the significant rise in rents.” The package will cost €900 million.

Another possible incentive for the removal of this visa program is the European crackdown on money laundering, particularly post Ukraine crisis; last year saw the passage of the UK Economic Crime Act as an example. Reportedly, over 50% of those who received the golden visa since its beginning are from the top 30 money laundering jurisdictions in the world.

The visa had previously received backlash from anti-corruption authorities, who argued that the Portuguese government must publish more information about the issuance of the visas and that it affected Portugal’s CPI (Corruption Perception Index) score, which is currently 62, putting Portugal in 33rd place.

Last year, the EU called for the end of golden passport schemes while urging member states to consider the security and corruption risks. 
 

Portuguese House Prices

Buying a house in Portugal in January 2023 was 7.1% more expensive than one year prior, which has been fueled by international buyers. In Lisbon’s metropolitan area, property prices were up by 15.2% in November 2022 from a year earlier; meanwhile, the city ranked as the third least financially viable place to live in worldwide last year.



(Credit: Eurostat)

Portugal’s house price increases are well above the European average of 5.5%. In an investigation released this month, the rating agency Moody’s stated that “Continued economic growth, low interest rates and investor demand have contributed to this development”. Currently, Portuguese families must invest 130% of their annual income to buy a house.

However, the agency states that high inflation is now driving interest rates and investor demand is predicted to fade due to this, so prices are predicted to fall, particularly because "home prices have exceeded intrinsic values, exacerbating the risk of a correction."


(Credit: cia Landlords)

Outrage from the Real Estate Market

The Portuguese Association of Real Estate Developers and Investors (APPII) has spoken their thoughts on the government’s proposals, saying that confidence from investors will be eroded by this “attack” on private property. Note that 76% of Portugal's three billion real estate investments in 2022 that contribute to its status as an emerging market in Europe were foreign capital, and this percentage does not include joint investments by nationals and internationals together.

Hugo Santos Ferriera, APPII’s president, states that the housing plan will cause a decrease in foreign demand "with serious impacts on the national economy and an attack on the economy of the cities themselves, trade and urban rehabilitation". He also noted that the measures excluded the creation of more new housing, which would be a more important measure.

Director of Athena Advisers Portugal, David Moura-George, argues that “we cannot deny that the program will have made some contribution” to the fact that “domestic buyers were, in some way, unable to buy a house in the rehabilitated areas”. However, he went on to say that it was the 2012 Urban Lease Law update that caused the rent inflation in Lisbon over the last 10 years, and “the golden visa was an incentive that complemented the international demand”.

Overall, the ‘More Housing’ plan has provoked a negative response from Portuguese real estate professionals, and the coming months will demonstrate whether the package has a significant impact on house and rent price, or investment decisions and investment risk.


Discuss global investments in the dedicated discussion on the topic at Portugal GRI 2023 with the leaders of the Portuguese market.

Written by Sarah Garnett