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The real estate market in Portugal. Analysis and forecasts for 2021

Hello to all the readers of our blog! Today we are going to talk about a topic that concerns many investors who have doubts about investing in the Portuguese real estate market in 2021. We’ll cover all the aspects that could affect your decision, from the specifics of the local real estate market to getting citizenship for your investment. Portugal – is a country attractive to Russian entrepreneurs and everyone who wants to get a passive source of income and European citizenship at the same time. This allows the so-called “Golden Visa”, which gives our compatriots the right to a residence permit and the opportunity to rent their property, receiving income in euros per month. In addition, you can freely move around the Schengen countries and claim dual citizenship.

Portugal Real Estate Market
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Real Estate Market in Portugal. History and Features

Just recently Portugal was not the most attractive for investors. Property prices in Portugal were not too high, but the low standard of living, unemployment, and other consequences of the global economic crisis made it one of the least popular countries in Europe. That all changed when a special program was introduced in 2012, allowing people to obtain a residence permit in exchange for large investments in the country’s economy. Since then, residents of China, South Africa, Turkey, Russia, and other states have willingly bought local real estate. On the backdrop of high demand, real estate prices are also rising. Even the covid-19 pandemic, which has had a tangible impact on various areas of people’s lives around the world, has not led to their decline. Only rent has fallen in price. But this is a seasonal phenomenon associated with the spread of the virus. This is because workers and tourists have been forced to leave the country and return to their hometowns. We are confident that with the lifting of strict entry restrictions its value will begin to rise steadily again.

In September 2020, Portugal ranks 37th in the world ranking when it comes to the average price per square meter of housing. This amount is about 2.5 thousand euros. But along with the cost of square meters is rising and rent. Consequently, the earlier you buy real estate in Portugal, the higher the probability that in the future on this will get to earn a decent monthly sum. The average cost per square meter depends on the region in which the investment is located. The center of Lisbon, Porto, Madeira Island, and the Algarve province are the places with the most expensive real estate. They are attractive to tourists and businessmen, as well as to foreigners moving to Europe with their families. Much lower cost of housing in areas with poor land and difficult terrain, in sparsely populated areas. But since the authorities of the country are interested in a homogeneous distribution of the population over its area, low prices are not the only measure to stimulate the sale of local plots. 

Purchases can be made on vacant lots as well as entire hotels. The state does not impose any restrictions on foreign nationals, which would set a limit of square meters in the possession of a person without Portuguese citizenship.

Portugal Real Estate Market. History and features.
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Who buys property in Portugal and why

Portugal is a beautiful European country with beautiful nature and a comfortable climate. Here you can relax on the sea coast or settle among the old houses, which have long become monuments of architecture. However, the external side of the issue – is not the main reason why Portugal so eagerly comes to Portugal Russians and citizens of other countries of the world. A certain percentage of investors in the Portuguese economy are families with children. These can be entrepreneurs or simply people who want to provide the younger generation with a decent standard of education and life in general. They are attracted by the safety, environmental friendliness of cities, and the opportunity to travel around Europe. They usually buy real estate at a minimum price, which guarantees the Golden Visa, and either move to the country for permanent residence or for the first time rent a house. Then it is usually sold to buy a less expensive apartment.

The second type of investor is the individual entrepreneur. In comparison with Russia, Portugal is much safer for running a business, even in the initial stages of its formation. Here you can choose a low-tax regime with minimum accountability and go about your business without fear that it will be taken away for some reason. Moreover, Portugal badly needs qualified personnel and fresh high-tech start-ups. That’s why entrepreneurs from abroad are welcomed here with open arms, provided they create jobs for Portuguese people. But the most common reason for buying Portuguese real estate is the desire to get a residence permit, and then citizenship in Portugal. If you compare it with the proposals of other states, Portugal offers the easiest conditions for obtaining a passport for foreigners. At the same time, there is no need to abandon the documents obtained in the native country, if its laws do not prohibit having two citizenships. In the Russian Federation, a person can have both the Portuguese and the Russian passports at the same time. 

Who and why buys property in Portugal
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Investment attractiveness of Portugal

Portugal is one of the best options for investment in Europe. The reason is a developed infrastructure for tourists, a favorable climate, and a good location. After all, this is the westernmost country in Europe, which has access to the warm sea. There are clean, well-groomed beaches for those wishing to engage in water sports. Portuguese yacht routes are considered one of the best in the world, as local areas for surfing. These advantages make the country attractive to tourists from all over the world. Holidaymakers need somewhere to live. So they are at the service of all kinds of hotels, apartments, and rental housing. Foreigners are not limited in the acquisition of local real estate, so they can even buy a share in the hotel. This is a stable source of income, especially important in the summer season. But even in the cool and rainy winter, the country attracts travelers who want to admire the ancient architecture. So the purchase of housing for rent is not a bad option for those who want to make a profit all year round. Investors can invest not only in presentable new buildings but also in old and even dilapidated homes.

If the purchased property is more than 30 years old, it is more profitable to buy it than it may seem at first sight. Of course, the new owner has several obligations that must be met. But compared to the fact that the historic property will be profitable immediately after purchase, they need to keep its facade unchanged is a trifle. 

Portugal is a country known not only for its beautiful seascapes, hearty national cuisine, and unique landscapes. It has an extensive entertainment industry, with amusement parks, casinos, luxury restaurants, golf courses, and even the famous Formula 1 circuit attracting millions of tourists each year. Owners of real estate located near such popular objects can earn a decent amount of money each month. That, combined with tax exemptions in the first few years after purchase, makes buying local houses and apartments even more profitable. The investment program is in demand from citizens around the world. For example, according to statistics for 2020, it brings in about 800 million euros annually to the country and cumulatively brought in 5.5 billion to the state budget. Among the 9,340 investors in 2020, more than 350 were Russian citizens. And demand for real estate in Portugal continues to grow. 

Portugal's investment appeal
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How residence permit, Golden Visa and real estate are related

The Golden Visa in Portugal is an innovation designed to attract capital to the country from abroad. The creation of such a program was due to the economic crisis that hit its economy hard. The authorities decided to further encourage investors by offering them favorable conditions to obtain a residence permit, permanent residency, or citizenship in exchange for their contribution to the country’s economy. The new-style immigration program has been in place in Portugal since 2012 and has already been recognized as one of the most convenient in the world. Today, it is one of the easiest ways to obtain EU citizenship. All that is required is a willingness to invest and a certain amount in euros in a bank account. It is noteworthy that the investor can move to Portugal alone or take along his family: elderly parents, spouse, minors, or children studying full-time at the university. The gold visa is issued in 2 to 6 months, depending on the number of people on the application list. Investors are not required to prove their knowledge of the Portuguese language, nor are they required to take any exams. When buying a property, a residence permit is issued for a year, and then, if the housing has not been sold, it can be extended 2 more times for 2 years. The total is 5 years. That is how long you need to own property in Portugal to be able to become a citizen. An important detail: investors are not required to stay in the country for six months to extend the “golden” residence permit, as in the case of obtaining an ordinary residence permit. It is enough for 7 days in the first year and 14 every two subsequent years. But if an investment program participant plans to move to Portugal for permanent residence and citizenship, living on its territory should be permanent. If you believe the statistics, this country provides the fastest naturalization of foreign citizens. For comparison, to become a citizen of Italy is possible after 10 years of residence in Italy, and to obtain Greek citizenship will take 7 years. The minimum amount of investment depends on the type of housing. Demand is in demand in the elite areas and the seaside, so the state does not lower the minimum threshold for investors who decided to buy a square meter just there. But it encourages the purchase of old houses and housing in areas with an unusual topography and low population density. If an investor plans to buy a modern, well-renovated property ready to be rented to tourists, the minimum amount of investment in the country should not be less than 500 thousand euros. It does not matter what type of real estate is purchased and in what quantity. The main thing – is the total value of square meters in the possession of the investor. A smaller amount – 350 thousand – can be paid if you have opted for housing, and participating in the renovation program. By taking the obligation to restore the building, the investor must acquire real estate in the historic district. Also under this program fall houses in areas where the state is restoring the urban environment at the expense of injections of foreign capital. 

How are Residence Permit, Golden Visa and Real Estate Related
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Taxation for new residents in Portugal

If an investor moves from his native country to Portugal and plans to do business there, he is certainly concerned about taxation. In some states, the Russians with dual citizenship do have to pay taxes, including those on business activities, in a double amount, which is unprofitable. But in Portugal, there is a system of non-habitual residency, thanks to which taxation remains acceptable. This status can be obtained if you plan to stay in the country for at least six months (183 days or more). It allows one to benefit from tax incentives for the first 10 years of life in Portugal. This means that the investor may not pay taxes on income earned abroad, which guarantees self-employment, pensions, various dividends, and other sources of income. Taxation for New Residents in Portugal

What’s in store for Portugal’s real estate market in the coming years

If you want to get a Golden Visa when you buy Portuguese real estate, it’s important to consider one fact. On December 22, 2020, the country’s government amended the law governing the granting of residence permits for contributions to the country’s economy. The innovation affects the legal regime of residence permits for investment (ARI). As of July 1, 2021, new rules will apply across the country, affecting those wishing to purchase real estate in many areas. These are New Lisbon (Cascais among them), Porto, and coastal areas, among them the Algarve. From the summer of 2021, the legal regime of ARI will change. The Portuguese government at this time is more advantageous to encourage foreign investors to buy real estate in the interior and island areas of the country. The reason – is the small population density relative to the central, coastal, and other regions, attractive to tourists. Portuguese authorities plan with the help of foreign investment to solve the problem of requalification of cities, support the ecological development of regions, and preservation of cultural heritage. The funds will also be used to help socially disadvantaged citizens, creating new jobs.

The changes were supposed to start back in 2020, but the worldwide pandemic has thwarted the state’s plans. So the new law will take effect on July 1. However, this does not mean that at the beginning of the summer, investors will not be able to buy real estate in the capital or on the beach at the old prices. The measure provided for by the Portuguese legislation will be introduced gradually, and by the end of 2022, the purchase of buildings and apartments in these areas will be possible. Citizens of other countries who plan to buy square meters in the metropolitan areas of Lisbon, Porto, and the coast and obtain a residence permit, will be able to continue to enjoy the benefits of the existing regime until the law is fully in force. But the smallest possible amount of investment for the Golden Visa for a contribution to real estate in these areas will steadily increase. At the same time, the remote regions of the country will not be affected by the innovations, there the minimum threshold for investment will remain the same.

What's in store for Portugal's real estate market in the coming years
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How much has been invested in the Portuguese economy in recent years

The investment in income-producing real estate is a stable source of income for the country, which allows the development of its domestic infrastructure. Direct proof of this fact is the official statistics of the SEF. In November 2020, Portugal issued a total of 86 Golden Visas to foreign nationals, which means the same number of residence permits. 80 of them were obtained by persons who have invested the necessary amount (from 500 or 350 thousand euros for homes 30 years and older) in the purchase of local real estate. . Concerning the amount of investment, compared to the data for 2019, it is up 35% relative to the same date and 75% when compared to the figures for October. The amount of investment for the month in 2020 was 50 million euros. To be more precise, 9,340 investors invested 5,615 million in 8 years. 8,782 residence permits were issued to foreign nationals for investment in real estate in Portugal. The amount of their contribution to the Portuguese economy amounted to 5 071 million euros. This just proves the investment attractiveness of Portuguese real estate. 

How much has been invested in the Portuguese economy in recent years
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Why it’s important to have time to invest in real estate before 2022

The outlook for investors is relatively favorable, and already today we can say that international investment in real estate will continue to flow into the Portuguese budget. However, now the bulk of the money will not go to the central region or the coast, but to the CIM, the inter-municipal communities, and the interior and autonomous districts that exist within the country.

The number of jobs will also increase, and for some investors, the best option will be to start their own business. At the moment, this direction is not so popular, and the percentage of such investments from the total number is very small. But in the long term, the Portuguese will be able to get 5 jobs in each new enterprise opened in exchange for the Golden Visa.

I don’t think the new law puts serious restrictions on investors and could prevent you from getting a residence permit in the next couple of years. However, if the amount is of initial importance to you, and you need to buy a house in the area of Lisbon, Porto, and the Algarve, it is worth hurrying. After all, over time, real estate in these areas of the country will go up in price. Entrepreneurs from other countries are unlikely to abandon it, but the entry threshold to the listed areas will be increased. It is impossible to deny the pressure of Brussels on countries that currently offer immigrants favorable conditions for obtaining residence permits, permanent residence permits, and citizenship. It is possible that shortly, Portugal will tighten the requirements for future citizens or increase the period of stay in the country to obtain its passport. A similar situation has already developed in Cyprus and is foreseen in Malta. It just means that it is better to invest before the end of 2022. The best option would be in the western part of Portugal, where you are guaranteed to be able to buy property in a good area, obtain a residence permit and apply for Portuguese citizenship.