This will include an end to Portugal’s controversial Golden Visa scheme, and banning new licenses for short-term holiday rentals, like Airbnb. The Golden Visa programme has been aiding new foreign property buyers, yet Portugal remains one of West Europe’s poorest countries, with house and rent prices skyrocketing.
In 2022 over 50% of workers were earning under 1,000 euros per month. At the same time, the cost of rentals jumped by 37% in Lisbon alone. Last week, Prime Minister Antonio Costa announced that Portugal shall “eliminate the issuance of new golden visas”, at a press conference in Lisbon. Foreign real estate buyers with existing Golden Visas who wish to renew will not be eligible unless the properties they hold are used as their own home, or placed on the long-term rental market.
The Golden Visa Era
The Golden Visas originated in 2011 following a bailout from the International Monetary Fund and the EU. At the time it was designed to bolster the country’s public finances, and, it worked, with €6.8 billion ($7.3 billion) raised by the country since then. Around 90% of that was poured into real estate.
The Golden Visa has been growing increasingly popular among US investors, while nearly half of the 11,628 residency permits granted under the program went to Chinese nationals.
Other countries across Europe and around the world have adopted variations of the Golden Visa, including Canada, Spain, Greece and the US. Golden Visa candidates must currently either make a property investment of a minimum of €350,000, transfer €1.5 million, or create at least 10 Portuguese jobs.
Criticism Of The Scheme
Despite its international popularity, the scheme has come under local fire among Portuguese politicians, who have criticised its impact on the real estate market. The argument against the program is that it’s driving up real estate prices, leaving many Portuguese residents unable to afford housing. Concerns have also been raised over the potential risk of money laundering and tax evasion by international buyers.
Portugal is currently experiencing a sizzling property market, coupled with low salaries, and for years locals have been struggling to pay rent or buy properties, while government policies have encouraged investment from wealthy foreigners. The issue has only been exacerbated by Portugal’s 8.3% inflation rate. The Prime Minister has gone so far as to say that this issue is now affecting all Portuguese families, and not only the lowest income earners.
The End Of An Era
While the Golden Visas helped encourage foreign investment in Portugal when it was desperately needed a decade ago, the percentage of property deals currently accounted for by Golden Visas is considerably lower. Premier Costa began to indicate the move to end the scheme was on the table last November, when he stated the Golden Visa programme “is no longer justified”. At the same time, his administration began placing restrictions on excluded property purchases and permits in Lisbon and other cities, where housing prices had reportedly reached €3,805 per square meter. This is more than double what they were in 2015.
A Justified End?
Schemes like the Golden Visa tend to succeed until opposition reaches a critical mass. When those opposed to a scheme come to view the negative consequences as greater than the potential benefits.
It would seem Portugal has now reached this stage, and politicians are keen to drop the scheme and rid themselves of the negative associations that go with it. Whether the scheme is genuinely responsible for the current state of the real estate market is debatable. While there has undoubtedly been an impact on the property market because of Golden Visas, it may be more realistic to say that no single factor can be held accountable.
The government is under pressure to live up to their promises where affordable housing is concerned. Previous promises set goals to see all Portuguese families in affordable, quality housing by 2024. Ending the Golden Visa program will mean an end to EU passports being offered to non-EU nationals in exchange for investments in Portugal’s economy. While it’s not clear when these new measures, which are worth around 900 million euros ($962.19 million), will come into effect, Costa has indicated some will be approved in March, while others shall be voted on by lawmakers.
Tourism accommodations are also set to be curtailed by these new measures, with new licenses for Airbnb and other tourism accommodations will be prohibited, except in urban areas. Costa has also indicated he will directly rent vacant houses from landlords and place them on the rental market.
Digital Nomads Remain
While the era of the Golden Visa may be coming to an end we haven’t seen the end of visa opportunities for foreigners just yet. Indeed, as long as other programs such as the Digital Nomads Visa remain in effect, these changes to the Golden Visa are unlikely to spark the kind of change needed to see all families in quality homes by next year. With the Digital Nomads Visa, foreigners enjoying high monthly income from remote work are able to live and work in Portugal without paying local taxes.
It’s likely that additional mechanisms will need to be introduced, such as government tax incentives for landlords to convert tourist properties into houses dedicated to local renters.
Blacktower Financial Management has been providing expert, localised, wealth management advice in Portugal for the last 20 years. We can help with specialist, advice on this matter.
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The information contained herein is for informational purposes only which is subject to change and should not be relied upon. You should seek advice from a professional adviser before embarking on any financial planning activity.