Apr 2, 2020

Legal residence in Portugal in 2020: Will investors be obliged to let their property on a lease?

Are you planning to purchase real property in Portugal and acquire a legal residence permit in the country in return? Please be prepared to face some unpleasant surprises on the part of the local authorities. A month ago, they resolved to stop issuing residence permits to the investors buying real estate in Lisbon and Porto by the beginning of 2021. Now they are discussing the possibility to make the estate owners who have obtained ‘golden visas’ rent out their empty property in these cities.

Even though the total amount of investments into Portuguese ‘golden visas’ decreased by 11% last year in comparison to the previous year, between January and December 2019, the country’s economy received around 74 million euros from foreigners purchasing real property there or making other kinds of investments.

Portugal issued 1,245 ‘golden visas’ to main investors in 2019. Even more visas were issued to the main investors’ relatives within the framework of the family reunification program. The golden visa program has allowed Portugal to collect around five billion euros from foreign investors since it was launched in November 2012. 

Investment option Number of golden visas Investments, million euros
Investments into newly built property exceeding 500,000 euros 946 584.5
Investment into property more than 30 years old in city rehabilitation districts 214 76
Bank deposits of 1 million euros or more 73 78
Investments into Portuguese investment funds/ venture funds 7 3.1
Establishment of commercial companies providing employment opportunities to minimum ten people 1 0.35

Distribution of the investments into ‘golden visas’ in 2019

As the official 2019 figures show, only one investor out of more than 1,100 obtained a ‘golden visa’ in exchange for creating new job opportunities in Portugal last year.

What is especially surprising about it is that this investment option does not have a minimum required investment amount. Thus, the applicant can – at least theoretically – spend less than 500,000 euros generating ten new jobs.

500,000 euros is the minimum required investment amount for those who apply for a ‘golden visa’ in return for purchasing newly built real property. The statistics shows that this is the most popular investment option. Besides, investors prefer buying property in Lisbon and Porto. 

Nevertheless, this tendency can change, as beginning 2021, the Portuguese authorities have decided to stop issuing ‘golden visas’ to those foreign nationals who buy real estate in the two largest cities of the country (see below for more details).

Legal residence in Portugal in 2020: Obligatory rent of property?

What is more, recently local legislators have started discussing the opportunity to oblige the homeowners who hold ‘golden visas’ to let their vacant property on a lease to the people of Portugal who need housing.

Bloco de Esquerda (The Left Block) has come with this proposal. The politicians demand that the vacant estate be used for the public good as council housing.

The text of the proposal says that this measure should only be applied to the property located in the capital city of Lisbon. It also points out that Lisbon municipal authorities issued 47% of all Portuguese ‘golden visas’ between 2012 and 2017. The visas were issued to 2,423 foreigners how had bought real property in the capital.

“Even with the lack of transparency that this process possesses, the increase in the property rent prices is obvious. This increase is conditioned by the speculations that took place when the ‘golden visa’ program was initiated”, says the Bloco de Esquerda text.

It also notes that the sales of Portuguese citizenship for 500,000 euros invested into real estate in the country has led to unacceptable discrimination. “The average price of property in Lisbon is 3,025 euros, which is twice as much as that in Porto and three times as much as the average price of property in Portugal as a whole”.

The Bloco de Esquerda representatives point out that the deviations in Lisbon property prices make native people of Portugal who rent accommodations in the capital leave the city.

In November last year, the municipal authorities of Lisbon passed a new regulation on the ‘right of abode’ that includes development of an affordable housing program aimed at young people and the middle class.

In accordance with the new regulation, “the housing costs shall not exceed 30% of the net monthly family income”. This figure shall be lower by 2% if the family has dependent children.

In light of this news, if you are planning to apply for a residence permit in Portugal when buying real estate in the country, please consider the opportunity to rent your property out in case neither you nor your relatives are going to reside in this estate.

Legal residence in Portugal in 2020: The growing real estate market

The real estate prices continue to grow in Portugal due to the increasing demand and the improving overall economic conditions. Property prices grew by 7.82% in the country in 2019, by 5.39% in 2018, by 3.03% in 2017, by 3.85% in 2016, and by 4.06% in 2015. Thus, the last year saw the fastest increase in real estate prices over more than a decade.

Property prices dropped significantly in Portugal in the previous decade that followed a harsh economic crisis that had affected the country greatly. The prices were fluctuating but generally falling between 2009 and 2014. Only the fourth quarter of 2014 saw the beginning of price growth after a steady decline that had lasted for 13 consecutive quarters.

The demand is stable now and the supply is also growing. According to the Portuguese National Institute of Statistics (Instituto Nacional de Estatística, INE), the total number of real property sales during the first three quarters of 2019 was almost the same as that a year before and amounted to 132,246 pieces of property sold. At the same time, the total cost of the deals increased by 4.3% in relation to the previous year and amounted to 18.65 billion euros (20.23 billion US dollars).

According to the INE data, the number of Portuguese residence permits issued in 2019 amounted to 23,737 permits, which is 17% more than in the year before. 2018, in its turn, saw a 40% increase in comparison to the number of residence permits issued in the previous year.

Investors can obtain official permission to use the newly built house or apartment that they have purchased after the construction work is completed, the necessary sanitary equipment is installed, and the house is wired for electricity. Water supply and sewage do not have to be in place in order to have the permission.

It is expected that Portugal will remain one of the most popular real estate markets in the region. In particular, the ‘Trading Economics’ financial company forecasts that the real estate prices will grow by approximately 5% this year.

According to the INE, the Portuguese economy grew by modest 2% last year. At the same time, this figure is even higher than the ones stated by such organizations as WMF and OECD. In any case, it is still lower than the 2.4% growth that Portugal saw in 2018. The European Commission expects that the Portugal economy will grow by approximately 1.7% both in 2020 and in 2021.

Experts expect that the demand for Portuguese real estate may drop due to the coronavirus pandemic and the prices will acquire stagnation tendencies.

This February was the most successful month in history for the local real estate agents. However, since the beginning of March, much fewer foreigners want to see pieces of real property to buy. Some property purchase negotiations have been suspended but not terminated.  

The specialists of the Portuguese Association of Developers and Real Estate Investors (Associação Portuguesa de Promotores e Investidores Imobiliários) believe that at the current moment, many potential buyers are waiting for the situation to go back to normal.

Experts do not think that the current crisis is going to be similar to the crisis of 2008. Nevertheless, the coronavirus epidemic may cause the prices to decrease slightly, which already can be seen. The reduction in the number of deals that are made is also quite understandable. However, it is expected that the premium property prices will remain stable over the period of uncertainty.

Legal residence in Portugal in 2020: Rules change

Let us remind you that the Portuguese authorities are eager to lower the real estate prices in such large cities as Lisbon and Porto and make housing more affordable for the average Portuguese family. In order to achieve this goal they are planning to stop issuing residence permits to those foreigners who purchase property in the abovementioned cities. 

The necessary amendments to the legislation have already been made that permit introducing this new regulation in the next financial year. The Government officials stress that the new regulation is not going to have any retroactive force: if you purchase real property in Lisbon or Porto right now, you will qualify for the ‘golden visa’ and thus the legal residence permit and it will not be taken away from you when the restrictions come into effect.

In addition to that, the Portuguese authorities are considering the possibility to toughen the requirements of the Residentes Não Habituais (Non-Habitual Resident) program for fiscal residents of Portugal. In particular, foreign pensioners residing in the country may have to start paying a 10% income tax on their pensions that they receive from their home countries. Currently, foreign pensions are not taxable in Portugal.

The possibility to acquire legal residence in an EU country and good prospects to become its citizen in a while via naturalization make Portugal an attractive jurisdiction for immigrant investors. At the same time, it can be expected that the demand for this opportunity will decrease if Portugal follows the example of Australia, New Zealand, and Canada. Recently, these countries have significantly restricted to possibility for foreign nationals to acquire their residency and citizenship via ‘golden visa’ programs.

The negative impact of such a policy on the Portuguese economy will be quite considerable bearing in mind that there are alternatives in Europe for immigrant investors that include Cyprus, Malta, Spain, and Greece.  

Legal residence in Portugal in 2020: Some concluding remarks

Would you like to purchase a piece of real property in Portugal and obtain a legal residence permit in the country thus opening to door to the citizenship of an EU member state? If the answer is ‘yes’, please contact our specialists at [email protected]. They know the local legislation perfectly well and the local real estate market too. They can draw up an individual immigration plan for you that will be based on your needs, preferences, and financial means.

With their assistance, you can choose a nice piece of property in any region of Portugal including large cities. If you would like to clear up certain details and ask some questions before you make the final decision, please do not hesitate to use the same e-mail address and contact Offshore Pro Group.