Portugal halts real estate route for Golden Visa, embraces investment funds

Golden visa overhaul: Portugal has overhauled its golden visa scheme, discontinuing the option of obtaining residency rights through real estate investments. The government, responding to housing crisis concerns, now directs foreign investors to put their money into qualifying investment funds. Initially introduced in 2012, the golden visa scheme has drawn €7.3 billion ($8 billion) in funds, primarily from China, Brazil, and the United States. However, around 90 per cent of these investments went into real estate, exacerbating housing price issues and prompting regulatory adjustments.

In February 2023, the Portuguese government initially declared the termination of the golden visa scheme, aiming to redirect property investments away from major cities to less populated areas. The European Commission has also criticised such programs due to security risks, advocating for their discontinuation.

Funds dominating golden visas

While investment funds have been an option since 2015, they are now anticipated to take centre stage in the golden visa program. Applicants seeking a golden visa must transfer €500,000 to one or more qualifying funds. Although the Portuguese stock market regulator, CMVM, has not provided a comprehensive list of eligible funds, it is estimated that there are around 40 options, though not all may be open for investment.

Sustainable investment funds, like Pela Terra, focused on regenerating farmland in the Alentejo region, see the revamped regulations as an opportunity for growth. Pela Terra investor Jim Davidson highlights that the changes align better with values and ethics, steering away from real estate investments. Other funds, such as Sharing Education, which invests in international schools, are also witnessing increased investor interest seeking diverse investment options.

Real estate's absence impact

Experts predict that, with real estate closed off as an option, investment funds will soon represent the majority of golden visa investments, comprising 80 per cent to 90 per cent of total investments. However, concerns linger about potential decreases in overall funds flowing into Portugal, given the necessity-driven nature of golden visa applications. Contributing to cultural projects, scientific research, or generating jobs remain alternative pathways for obtaining a golden visa. Some also express concerns about the bureaucratic nature of the golden visa process and potential uncertainties related to the new rules.

Despite the regulatory changes, Portugal faces challenges in maintaining investor attractiveness compared to other countries with more flexible golden visa schemes, such as neighbouring Spain. The exclusion of real estate investments raises questions about the scheme's benefits for Portugal, particularly as eligible funds need only invest 60 per cent of their capital in the country. Additionally, political instability, highlighted by an upcoming snap election, adds an element of uncertainty for potential investors. The revised golden visa scheme aims to strike a balance between attracting foreign investments and addressing housing-related concerns within the country.

(With Reuters Inputs)