How Portugal Can Use Foreign Investors to Solve the Housing Crisis Instead of Scrapping the Golden Visa

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Anatoliy’s Analysis
With Anatoliy Lyetayev

Anatoliy Lyetayev covers topics that help industry professionals be more efficient, do more business, and make more money.

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Portugal is grappling with a housing crisis that has left many citizens struggling to afford homes. The median house price has skyrocketed, with a year-on-year growth rate of +13.5% in the third quarter of 2022. Low-income families are particularly affected, as over half of Portuguese workers earn under 1,000 euros a month.

In February, the government introduced the “Mais Habitação” legislative project to address the issue, which suggested ending the Golden Visa program. According to Prime Minister António Costa, investors who buy property do not create job opportunities and contribute to the housing crisis.

The bill’s initial version suggested that already issued visas would not be renewed unless they met strict criteria and that new applications would not be considered, even though the program had not been officially terminated. This raised concerns regarding the constitutionality of the government’s actions.

Last Friday, the government published its final wording of the bill, and it will now be discussed in parliament. The updated version is far less extreme and does not propose any retroactive measures. It is expected that already issued and applied-for visas will be granted as a special type of D2 visa, allowing existing visa holders to renew their permits and retain the seven-days-in-a-year rule. However, the option to invest in real estate will no longer be available.

But are the Golden Visa holders really the ones responsible for the housing crisis? The statistics would indicate otherwise. 

How did Golden Visa investors invest in real estate? 

As of February 2023, the SEF has issued 11,758 Golden Visas to main applicants, along with 19,171 residence permits for family members. 10,755 Golden Visas pertain to real estate purchases, a category that accounts for €6,118 billion out of the total program investment of €6,852 billion. 

How much real estate did they purchase? 

Using data from the National Statistics Institute (INE) construction and housing reports, we can calculate that Golden Visa investors accounted for approximately 0.76% of the 1,174,000 units traded from the visa launch until the end of 2021 per the most recent report. That tiny proportion obviously doesn’t suffice to “distort” the real estate market at a national level.

What kind of property do they buy? 

Suppose we crunch the numbers and divide the total investments made in real estate by Golden Visa holders by the number of Golden Visas issued via the property purchase route. In that case, we get an average per-applicant investment of €568,863. But let’s be real; properties in this price range are not the ones that are in short supply in the Portuguese real estate market. And if we’re talking about buying multiple units for rental purposes, chances are those units are already in the rental market.

If Golden Visa investors do not contribute to the housing crisis, what does?

Experts attribute the shortage of affordable housing options to various factors, including the booming tourism industry, high migrant inflows, and a lack of social housing. Here are some interesting numbers. 

The tourism industry in Portugal has been on the rise, with a record of over 26 million foreign tourists in 2019. Now, the sector is rapidly recovering after the pandemic restrictions. A study by the School of Economics and Management at the University of Porto showed that converting the residential real estate pool from housing to tourism (AirBnBs, for example) resulted in extreme housing price increases due to inelastic housing supply.

Additionally, Portugal has seen an increase in its immigrant population, which reached a total of 752,252 in 2022. While the number of Golden Visa holders represents the insignificant  0.38% of all immigrants last year, people coming through other visa programs often seek more affordable housing options, leading to increased competition in the market.

The shortage of social housing also is a critical aspect. Social housing constitutes only 2% of all public housing in the country, in stark contrast to other cities like Vienna, where it accounts for 60% of the stock. This lack directly impacts the most vulnerable groups of the population.

Also, let’s not forget the impact of the COVID-19 pandemic that has exacerbated the global housing shortage, with rising land prices and delays in construction projects. 

However, foreign investment in real estate could be used strategically to create a win-win situation for the economy and investors while addressing the housing crisis. How can that be achieved? 

Investment options to combat the crisis

• Donations to a national fund
  Portugal could adopt a qualification option similar to those of the “Caribbean Five”, where investors contribute to a national development fund in exchange for residency or citizenship. If half of last year’s Portuguese Golden Visa applicants chose the donation option at a reasonable level of €250,000, the country could reap €160 million in unencumbered budgetary funds. It could use this to, for example, construct approximately 325,203 square meters of housing for social or affordable rent purposes.

• Repairing abandoned dwellings
  In Lisbon, 25,999 buildings are unoccupied, representing about 15% of all city dwellings. Why not give investors the chance to buy and repair some of these buildings with an obligation to convert them into hotels or social housing? Alternatively, investors could renovate houses and rent them out with rental price limits set by authorities in exchange for residency permits and tax incentives on rental income.

• Construction of new buildings for rent
  Creating an option for direct investment in building houses destined for the rental market could constitute a true build-to-let industry that could help solve the housing crisis in Portugal in a short period.

• Commercial property investment
  Limiting foreign investors to commercial property purchases for the Golden Visa program would both attract capital and create jobs, while also alleviating the strain on the tourist housing market.

A modified Golden Visa program with various real estate investment options could increase the housing supply, ensure security from the state’s perspective, and maintain profitability for investors. There are successful examples in other countries that Portuguese authorities could use as references.

Altogether banning the real investment route will make Portugal less attractive for commercial investment. This may result in a missed opportunity to address the housing crisis in Portugal and instead create new problems. Rather than being blamed for the crisis, foreign investments and the Golden Visa program could have been the solution to it, by stimulating investment in renovation and the hotel business or creating different donation programs.

There is still time to turn the tables around and gain points by presenting a mutually beneficial solution.