Portugal’s 2020 state budget has proposed a significant change to its golden visa program that, if implemented, will have a huge impact on its popularity among wealthy foreign investors.
The government has proposed restricting property purchase in Lisbon and Porto as eligible investments to qualify for permanent residence under the golden visa program.
Going forwards, any investor buying property in these two cities will not be eligible to apply for the golden visa.
This is a significant change because property purchases account for more than 90 percent of the total investments received under this program, and these two cities accounted for two-thirds of the total real estate investments.
This change puts 60 percent of the golden visa program under doubt since investors are going to be wary about committing to investments in Portugal until the uncertainty is dispelled.
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About the Golden Visa Program
Anybody investing €500,000 in real estate in the country can qualify for a golden visa permit leading to permanent residence and possible future EU citizenship for the applicant and dependent family members.
The program’s impact can be ascertained by the fact that Lisbon, which was in the midst of a real estate crash in 2012 when it was first introduced, has become the second-most expensive property market in western Europe within just seven years.
Home prices rose by more than 10 percent between the third quarter of 2018 and 2019, second only to Luxembourg and significantly higher than the 4.1 percent rise in property prices across the EU.
Counterproductive Curbs
Facing a huge backlash from real estate developers and investors alike, the government was quick to defer the implementation of the proposal to 2021.
While the intentions behind the move, which include containing real estate speculation and making homes affordable for its middle class citizens, are praise-worthy, investors are likely to respond by simply choosing other golden visa programs like Spain and Greece.
Foreign investors have already begun pulling out of Portugal and have begun cancelling property deals despite the decision to defer the move restricting the golden visa to property purchases only to the regions of Madeira and Azores.
Golden visa programs have, in the past, been responsible for huge price surges and build-up of speculative bubbles in property markets in different countries.
Canada’s decision to terminate its federal investment immigration program was prompted when homes became virtually unaffordable for its citizens.
Australia revamped its program and barred direct investment in residential real estate in 2015. Demand among global investors for Australia’s Significant Investor Program is yet to revive after four years.
The COVID-19 Effect
With COVID-19 ravaging the global economy, the decision to curb the golden visa has been taken with bad timing. The possibility of government curbs on golden visa investors will deter investors and hurt the inflow of foreign investment.
The golden visa program contributed significantly to the revival in Portugal’s real estate and tourism sectors after the 2008 crisis.
Now, it remains to be seen whether the government will go ahead with this move, and whether investment immigration helps the country recover from the latest economic crisis as well.