9:33 AM, March 2, 2024

Portugal’s golden real estate boom

| The European |

Portugal’s Golden Visa is a programme geared towards high-net-worth non-Europeans looking for secure investment opportunities. The advantages of the programme are unique for investors, allowing them and their families to freely travel, work, live and study in all Schengen countries. The Golden Visa allows investors to extend the application to direct family members, with no further investment requirements. The reduced minimum stay within the country, only seven days on average per year, is another great advantage for those not looking to immediately relocate. The programme is also a fast-track to reach citizenship – after six years, investors have the right to apply for a Portuguese passport.

Awarded as the best ‘Residency Program Globally’ 2015 and 2016, by the Global Residence Program Index (GRPI) and aimed at attracting overseas investment to Portugal, the Golden Visa is very straightforward and has clear legal guidelines.

The Golden Visa effect on Portugal’s property market

In Portugal, there is currently low supply and high demand for new construction, creating the perfect conditions for investment in the industry.

The Golden Visa programme has been a key determining factor for the recent boom in real estate, together with the Non-Usual Tax programme directed to European Union citizens and a recent boom in the short-term rental industry.

To apply for a Golden Visa through real estate investment, foreign nationals, either personally or through a company, are required to make an investment that conforms to one of the following conditions: investment in real estate valued at least 500,000 euros; real estate with more than 30 years construction time with a value of at least 350,000 euros; real estate with a value of at least 400,000 euros in areas with less than 100 citizens per sqkm; and real estate, with more than 30 years construction time, in areas with less than 100 citizens per sqkm with a value of at least 280,000 euros.

Alternatively, Golden Visa applicants can obtain access to the scheme through investment in the non-real estate sector, that includes: completing a capital transfer of 1m euros to a bank operating in Portugal; investing 500,000 euros in Portuguese funds; venture capital or leverage capital funds; investment that creates 10 permanent jobs in a new company located in Portugal; or donating 250,000 euros for culture, heritage or arts to a Portuguese institute.

Property has been by far the most attractive investment prospect to users of the Golden Visa programme. Of the total 4,578 permits issued, 4,314 were on the basis of investment in property, 257 related to the transfer of capital and just seven concerned business activity that created 10 or more new jobs. The cumulative total of investment entering the country as a result is 2.8bn euros, of which 2.53bn euros is for investment in property. However, outside the many benefits Portuguese citizenship brings, there are also many benefits to investing in Portugal itself.

The candidates for the Golden Visa programme are applying through investment in Portuguese real estate, primarily due to the great returns investors are getting on the properties in Portugal. Low supply and high demand is generating capital gains for real estate investors of up to 12% every year, especially in the major cities and regions, such as Lisbon, Oporto and the Algarve.

Several factors are able to explain the strong annual returns investors are getting back on Portuguese real estate. Due to the the credit crisis, from 2008 to 2012, many property developers working in Portugal dropped out of the market. In 2013, with the tax benefits programmes launched by the Portuguese government and with recent tourist boom, the demand for property sky-rocketed. There is not enough supply for the huge demand, as the developers are returning to the market with a conservative approach, cautious after many years of deep uncertainty. On the flip side, the success of programmes aimed at attracting overseas investors (Golden Visa) and the fact that Portuguese nationals are not benefiting from the interest rates on bank deposits, is generating a huge demand for property.

A safe investment

Portuguese real estate is a safe haven for domestic and foreign investment and none of the data suggests the existence of a property bubble in Portugal; the real estate sector should therefore be considered a very safe investment. The Portuguese real estate market has not suffered from the exaggerated growth seen in other European countries, and there was no excessive construction in Portugal. In economic terms, over a seven-year period Portugal experienced a nominal variation in prices in the order of 20%, which corresponds to a percentage lower than recorded inflation (25%).

The history, culture and beauty of the country, the famous Portuguese hospitality, great food and the affordable cost of living are attracting more tourists every year. The country has seen an average increase of 12% in tourism over recent years and is expected to grow even more.

Tiago Camara

Lisbon (pictured) has witnessed a tourism increase of around 50%, over the last two years. In response to this a new sector has arisen: the short rental market.

The boom of short-term rentals is bringing new life to Lisbon’s older neighbourhoods, where more and more property owners are refurbishing their old properties to rent to tourists through sites like Airbnb or warmrental.com. Investors who are candidates of programmes like Golden Visa and non-habitual residents normally look for this kind of refurbished or central city apartments since they can be short rented to tourists. Generally, a property in one of the city’s historic areas near the city centre can generate an income of around eight to 12% a year, through daily rental basis. The Golden Visa residence permit is just the icing on the cake in a real estate market full of opportunities for investors.

The opportunities are there right across Portugal. Either to develop, renovate or trade in property. Property trading is delivering strong ROI, providing investors with a limited exposure to Portugal’s real estate market, where they can capitalise on investments by at least 10% in every move. These days it is possible to target returns on real estate at over 30% a year. Today Portugal is a both a safe haven and a profitable market for investors.

About the author
Tiago Camara is Co-founder and a Partner at PTGoldenVisa.

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