Portugal has fallen out of favour with foreign property investors in recent years. They went shopping in the country and encouraged the sector in its various segments, from residential to commercial. In the meantime, the country (and the world) has been through a pandemic and is now facing the consequences of an economic and financial crisis that erupted with the war in Ukraine. Faced with an international context marked by high inflation and a rise in interest rates led by the European Central Bank (ECB), Portugal is mired in a housing crisis and many players in the sector are pointing the finger at the lack of stability, particularly in legislation, with the end of the gold visa programme within Mais Habitação (More Housing) stirring up the waters (too). So what can we expect from the future? Are foreign investors in Portugal set in stone, especially the Americans? Will the country still be on the radar? Experts consulted by idealista/news answer these and other questions.
"I don't feel that Americans are stopping investing in property in Portugal, quite the opposite. Interest in customers from the USA is growing. This is mainly due to the interest they have shown in the country and the fact that prices are lower than in the US. US citizens want to come to Portugal because it's a country with a lower cost of living and where they can enjoy a higher quality of life," says Diogo Capela, a lawyer and partner at Lamares, Capela & Associados.
This analysis is in line with the idea expressed in an article we published recently, which reported that there was a full house at the "Living in Portugal" event held in San Francisco in June, with many middle-class Americans keeping the dream of buying a house and living in Portugal alive.
"I don't feel that Americans are stopping investing in property in Portugal, quite the opposite. Interest in customers from the USA is growing. This is mainly due to the interest they have shown in the country and the fact that prices are lower than in the US."
Diogo Capela, lawyer, partner at Lamares, Capela & Associados
However, according to Bloomberg, more and more Americans are leaving Portugal because of high housing costs. In another article, the publication writes that the bet is now on the Spanish island of Mallorca. Nuno Garcia, managing director of GesConsult, defends the same idea. "In the last three years we have witnessed what can be called a 'love affair' between the Americans and our country (...). Now we are beginning to see this new American dream unravelling. The arrival of a large number of foreigners with significantly higher purchasing power than the Portuguese has led to a sharp rise in housing costs, a factor that seems to be boycotting the idea of Portugal as an affordable country to settle in," he says.
He also warns that Portugal lives "in a system characterised by delays and bureaucratic obstacles, which, combined with language barriers, doesn't help to make processes faster or the country more efficient and attractive".
On the Savills side, Alexandra Gomes, Head of Research at the property consultancy, recalls that "in recent years, the North American market has contributed to an increase in the volume of commercial property investment in Portugal". "In the last five years alone, US investors have invested more than three billion euros in the country, with a special focus on the office and hotel, industrial and logistics and retail sectors. Major market players such as Blackstone, Davidson Kempner, Anchorage and LCN Partners have shown enormous interest in the national investment market and are making strategic bets to make their mark," he adds.
End of golden visas. What's next?
When asked whether the end of golden visas and legislative instability have contributed in some way to a halt in property investment by foreign players, Miguel Lacerda, Lisbon Residential Director at Savills, gave a clear answer: "There is no doubt that these factors contribute negatively to this scenario, particularly because of the image of legislative instability they convey. However, we continue to believe that the international market will remain in Portugal."
Lawyer Diogo Capela believes that "the end will only be reflected in property investments" but points out that they will remain in place "for other forms of investment that are equally attractive to US citizens, such as the purchase of units in investment funds (€500,000). "In addition, many Americans really want to live in Portugal and, in these cases, there are visas and residence permits that can be applied for, which are even more interesting than golden visas," he explains.
"We continue to believe that the international market will remain in Portugal"
Miguel Lacerda, Lisbon Residential Director at Savills
The expert also points out that there is a tax benefit that was created at the beginning of the year that has a direct impact on property investment: "Since January this year, taxation on property capital gains has been the same for residents and non-residents, in the name of a level playing field. Currently, everyone, residents and non-residents, is taxed at just 50% (in 2022 and previous years, non-residents' capital gains were taxed at 100%)."
Nuno Garcia is more pessimistic about the impact that the end of gold visas will have on Portuguese real estate, stressing that the programme gave foreign investors the opportunity "to become residents in Portugal and invest their capital in the national market".
"Last year alone, 216 golden visas were issued to Americans, surpassed only by the Chinese - the main beneficiaries. With the end of the issuing of these authorisations, some of the perks and tax benefits that were associated with them also come to an end. Portugal is thus becoming a less attractive country," says the managing director of GesConsult.
The answer to this question is... yes. "Despite all the bureaucratic changes that have been implemented (...), it's clear that Portugal hasn't completely lost demand. In addition to the purchase of land and vacant properties, I would say that investment in commercial and luxury property remains considerable, with the main investors coming from Brazil, France and the Middle East," points out Nuno Garcia.
Nevertheless, he warns that foreign investors may stop investing in Portugal. "The US case is just one example of what could - and possibly will - happen with other nationalities who, despite having once considered Portugal as a good option, are now re-evaluating that decision."
"Yes [there are investors from countries other than the US who want to invest in Portugal] and they come from various countries around the world, namely Brazil, the United Kingdom and Turkey," emphasises Diogo Capela, from Lamares, Capela & Associados.
"More than 80 per cent of the total investment volume comes from cross-border investors (...). In addition to investors from Spain, France, the UK and Germany, who have invested across the board in all property segments, the market has also seen the entry of capital from China, Israel and South Africa, more focused on the office, retail and hospitality segments."
Alexandra Gomes, Head of Research at Savills.
Miguel Lacerda, Lisbon Residential Director at Savills, confirms that "the dynamics of the international market in Lisbon and Cascais have been characterised by various changes in the nationalities that are present there", with "some disappearing and others emerging". "The country's key points, such as its mild climate, high level of safety, competitive cost of living and attractive property prices compared to other European cities, will continue to be a differentiating factor for the international market's choice of Portugal," he adds.
This trend will also continue in commercial property, according to Alexandra Gomes, Head of Research at Savills: "Portugal has attracted a diverse range of investors from all over the world. More than 80 per cent of the total investment volume comes from cross-border investors, while domestic investment funds are also gaining ground. In addition to investors from Spain, France, the UK and Germany, who have invested across the board in all property segments, the market has also seen the entry of capital from China, Israel and South Africa, more focused on the office, retail and hospitality segments. The diversification of the market and the continued interest of foreign investors suggest that the investment landscape in Portugal will continue to grow in the coming years."
Are the Portuguese tightening their belts... or not?
Uncertainty seems to be the watchword and Portuguese investors/buyers are already showing signs of putting the brakes on, largely because of the current situation, marked by increases in Euribor rates - following the ECB's hike in key interest rates - and a loss of purchasing power. Increasingly difficult access to home loans also helps to explain the slowdown in property deals, particularly in the residential segment. This at a time when the sector is clamouring for more homes to come onto the market.
"It seems to me that there is a slowdown in property investment by Portuguese (clients and investors) and more supply on the market too. Interest rates may be one of the most important factors why this is happening, but perhaps some people's prediction of a possible generalised fall in prices may simply be putting off investment plans. No less important for this may be the Mais Habitação (More Housing) package and the obstacles to local accommodation, measures that may be contributing to the slowdown in investment by national investors," comments Diogo Capela.
On this subject, Miguel Lacerda is clear. "It's true that the Portuguese continue to be active in our market segment [luxury], where the need for financing is also very low. On the other hand, investing in property is synonymous with security and allows returns that are closer to inflation compared to the conditions offered by banks," says the head of Savills' residential department.
"The Portuguese are finding it increasingly difficult to buy or even rent a property in their country. House prices have been rising and the supply side of the property market is failing to meet demand. What's more, salaries aren't increasing at the same rate as housing values"
Nuno Garcia, managing director of GesConsult
Concern is Nuno Garcia's top note. "The Portuguese are finding it increasingly difficult to buy or even rent a property in their country. House prices have been rising and the supply side of the property market is failing to meet demand. What's more, salaries are not increasing at the same rate as housing values. The changes introduced to obtaining housing loans, both in terms of time limits and effort rates, should also be seen as concrete obstacles to buying a house," he warns.
In conclusion, the director-general of GesConsult believes that there are Portuguese who continue to be active in the residential market, although he considers that this is not the reality for a large part of the population. "Many people are leaving the major urban centres to look for homes in areas with more affordable prices per square metre (m2)."