The controversial golden visa program for real estate investment is coming to an end in Lisbon and Porto by December this year. The announcement was made as part of the 2020 State Budget (OE2020) but faced delays due to the ongoing COVID-19 pandemic.
It has now been reported that this change will go through before the end of the year, which could serve a massive blow to real estate in the two main cities of Portugal. It does, however, leave the option of investing in real estate for a golden visa in areas outside of these urban hubs — such as in the interior of the country where tourism and redevelopment has been pushed in recent years.
The end of golden visas was driven through by the Bloco de Esquerda, Portugal’s left-of-center party, who see the ban as a step towards ending real estate speculation as well as potential financial crimes.
They aren’t alone in this opinion: the EU has urged member states to scrap such schemes almost two years ago, saying that they pose “serious security risks to Member States and the EU as a whole”
The EU mainly focuses on investor citizenship schemes (aka Golden Passports), which grant citizenship in return for investment, as opposed to the “lesser” scheme that Portugal has, which is an investor residence scheme that gives residency rather than citizenship in exchange for a set investment, often in real estate.
However, as with a number of other countries, this residency can quickly lead to citizenship in as little as five years: the average participant is required to spend as little as seven days a year in Portugal. Which is why the European Commission says that “both schemes pose similar risks in terms of security, money laundering and tax evasion.”
Portugal has generated considerable investment through the scheme, with a reported total of €5.5 billion raised since the scheme began in 2012. This equates to 9,200 residency permits aka Autorização de Residência para Atividade de Investimento (ARI), along with 15,792 residence permits for family members. Of the ARIs issued, 94% have been associated with the purchasing of real estate, which equates to a total investment of €5.0 billion in the past eight years.
Meanwhile, while Portugal grants residency for the creation of jobs in the country, that option has only accounted for 0.18% of golden visas since the scheme’s inception.
One can argue that the job-creation scheme may have done far more for the country than the real estate option, which has potentially contributed to the housing shortage in Portugal’s hubs. Regardless of your political leanings, few can dispute that an influx of hungry investors looking for a place to “base” their domicile for residency purposes does little for the local micro-economies if those investors aren’t actually in the country and don’t rent their property out — which, anecdotally, at least, is often the case, while the government has made little effort to track the numbers of golden visa recipients who mostly reside somewhere else and don’t need the money from renting out their properties.
Real estate investments under the golden visa scheme can either be the purchase of real estate worth €500,000 or “the purchase of property built more than 30 years ago or located in urban regeneration area for refurbishing, for a total value equal to or above €350,000. With such a heavy focus on real estate, it is easy to see how this would be a focus of concern — both for those trying to ban it in Portugal’s most popular cities, as well as those involved in the real estate industry who could be facing a major blow to their business.
Enquiring as to whether they had any insight into the matter, ERA, one of the three largest real estate brands in Portugal, didn’t wish to comment on the situation. The other major real estate companies, Century 21 and RE/MAX, failed to respond at all. All three companies market heavily to non-Portuguese speakers as is evident in the flyers their agents leave, unsolicited — often in English, mostly, but also in French — in mail boxes in popular neighborhoods such as Lapa.
Elsewhere in Europe
The EU commission’s warnings about the potential abuse of such systems were vindicated this week when Al Jazeera reporters filmed Cypriot officials using a golden visa citizenship scheme to help a fictional Chinese businessman with a criminal record. The video appears to show Demetris Syllouris, Cyprus’s parliamentary speaker, offering to use his position to help obtain the golden pass for the fictional businessman.
The revelation caused Syllouris to step down from his position, as well as an emergency parliamentary session that approved a proposal to suspend the citizenship for investment programme due to weaknesses in the program.
The suspension in Cyprus could mark a turning point, as it is one of just three countries (Bulgaria, Cyprus and Malta) that offer a citizenship for investment program, and perhaps this ban might highlight the potential dangers to countries currently offering residency for investment.