In my last essay, I analysed who truly benefits from the Golden Visa Programme; and it became clear that the Portuguese State emerges as the ultimate victor. Without a doubt, all the practitioners in the real estate industry are the formidable runner-ups. Today I’d like to explore the relationship between the Portuguese real estate market and the Golden Visa Buyers.
Before I continue, let’s have a look at the latest Golden Visa statistics released by SEF as of February 2023.
Total Investment: 6.86 billion euros
Total number of investors: 11,758
Total Investment in Property: 6.12 billion euros
Total number of property investors: 10,755
Despite not being the cheapest option, why did all investors choose to invest in real estate? Allow me to tell you the truth here. Because all the other options were almost non-existent or very cumbersome. For example, the VC funds are not well-regulated; and after all, VC implies risks. The option to create 10 job opportunities? The bureaucracy in Portugal can be very overwhelming and the high taxation has put off many entrepreneurs, thus I doubt which Golden Visa investor who simply wants a second citizenship would like to go through the nightmare. There weren’t many options for artistic or scientific research projects available for Golden Visa clients. In fact, I have yet to come across a genuine one.
In around 2016, when the Government revised the Golden Visa programme to include the rehabilitation scheme at a minimum investment of €350,000, a lot of visa applicants who fell short of the minimum €500,000 budget were discouraged by incompetent lawyers to choose the rehabilitation scheme. It was simply because the lawyers find it daunting to deal with more paperwork that was required to submit the Golden Visa application. Fortunately, many property developers saw the opportunity and started to offer turnkey solutions. As a result, the €350,000 option became much easier and transparent over the years.
However, many unprofessional lawyers would still encourage clients to choose the €500,000 option. Because this is the easiest way to submit the application, and at times, the lawyers are acting as property brokers themselves. For a minimum investment of €500,000 and up, that means they get more commission. This is illegal, but most do it anyway.
Over the years, I also witnessed first hand that many properties were sold to these Golden Visa buyers at a very inflated price. These properties come in all formats:
- Bad properties in bad areas that worth very little and inflated to €500,000
- Extremely tiny apartments of T0 or T1 were sold for €500,000; claiming to be in the city center and selling that “AirBNB” dream (With the Government crackdown on short term rentals in residential properties, I doubt what will be the future of these overpriced studios that do not even have a proper kitchen?)
- Unscrupulous self-proclaim developers flipping poor-quality properties and selling them at exorbitant prices. They produce glossy sales brochures, promote leaseback programs, and provide concierge services to Golden Visa buyers when they visit Portugal, among other perks.
By 2019, prices of real estate in Lisbon’s prime zone have gone up thanks to the booming economy. It was already very difficult to find anything decent at the price of €500,000. If one wants to have a brand new, 2-bedroom apartment that comes with car park in a building with elevator, the ticket size would be €600,000 and up. As of 2023, many of these apartments are already over €800,000 with some very premium ones fetching up to over €1 million. However, those bad properties mentioned above with a ticket size of €500,000 do appeal to some first-time buyers who are not familiar with the Portuguese market. Strictly speaking, these “properties” are not exactly a real estate product — they are more like an immigration product packaged for the investor to obtain a visa. Some of these properties simply do not have a resale value.
I would also like to discuss a bit about off-plan construction. A recurring theme these years is that supply of housing is not keeping up with the demand. Portugal has the lowest number of new builds at 1.5 dwellings per 1,000 inhabitants (Source: Ifo Institute for Economic Research). Most of the projects were sold before they were completed. Therefore, the years after 2016 were basically a seller’s market. And I dare to say that most of the best developments were not even sold to the Golden Visa buyers. For many reasons:
- An off-plan property which can be sold to a Golden Visa buyer MUST already have a PH (Horizontal Property)*. Without it, the buyer cannot submit his GV application. Truth is that, 95% of the off-plan construction projects did not have a PH at the time when they launch the sales.
- In off-plan construction, it is customary for buyers to pay according to the stage of construction. In the case of Golden Visa buyers, they have to pay at least €500,000 upfront. This can be risky if the developer runs away or never completes the project. Should this happens, the client not only has to bear the financial loss, but his visa application might be rejected in the end — SEF will question, “where is the property”?
- In many matured property markets like the USA and UK, clients who buy off-plan construction have the option of using an escrow account. This option is extremely uncommon in Portugal. Many developers refuse this option, and even if they agree to it, the process for the buyer to open an escrow account is very expensive and it takes a very long time; sometimes it takes so long that the development is already in near completion status.
- Incompetent lawyers. Truth is, many lawyers in Portugal are rather incompetent. They lack knowledge in real estate law. They simply know how to review a simple CPCV (Sales Contract) and the Deed. They do not know how to advise clients on the finer details and nuances of the purchasing process. The situation slightly improved with the emergence of more off-plan developments available on the market in recent years.
Finally, though this has been said for many times through various sources, truth is, the total investment in property by golden visa applicants accounts to less than 3% of all the property transactions. Should the government decide the wipe out the Golden Visa program, the impact on the real estate market is rather minimal. The Golden Visa program sure has its flaws, but it is another topic that cannot be mixed up with the current housing “crisis” (growing housing prices) Portugal is facing now. The unfortunate truth is that the Socialist government has been unable to identify a suitable solution to address the issue, leading the Golden Visa program to be unjustly blamed and caught up in political wrangling.
*Condition applies. In this case I am referring to a mutli-unit residential development.
