Portugal looks to cut 'golden visa' incentives for foreign property buyers

Lisbon

IN 2012, Lisbon's housing market was crumbling, with hundreds of decrepit buildings filling the city's downtown area and investors fleeing after the country sought an international bailout.

That year, Portugal started offering "golden visas" to foreign investors willing to spend 500,000 euros (S$750,000) or more on a property.

The programme has pumped 4.5 billion euros into real estate since it began, mostly from China, and helped turn Portugal into western Europe's second-hottest property market.

Prime Minister Antonio Costa now believes it is time to limit the incentives.

His ruling Socialist Party wants to restrict the golden visas to property purchases outside the capital Lisbon and the northern city of Oporto and try to attract investors to regions with a lower population density, according to a budget proposal.

Mr Costa says the aim is to contain speculation in the real estate market that has hurt the ability of the middle class to access affordable housing in Portugal's larger cities.

The golden visas "should contribute to the recovery of the property market where it's necessary or in areas of low population density," Mr Costa said on Wednesday in a speech broadcast by RTP. "Fortunately, it's no longer necessary in the big urban centres."

Isabel Sa da Bandeira, who heads a Lisbon-based organisation called People Live Here, said the golden visa incentives have created "huge injustices" in the housing market. "Many locals have left the city because they can't afford to rent or buy property," she said.

While real estate brokers in Portugal acknowledge that rising housing prices in Lisbon and Oporto are a problem for local residents, they fear the curbs on golden visas may prompt investors to buy property elsewhere in Europe. Cyprus, Greece and Spain offer similar schemes.

"You can't change the rules in the middle of the game, especially when Lisbon and Oporto account for more than half of all property purchases by golden visa investors," said Luis Lima, head of Portugal's Real Estate Professionals and Brokers Association. "It's counterproductive."

Mr Costa insists that the proposed changes will not affect existing golden visa holders. "Don't come with ghosts saying that we're changing the rules in the middle of the game because those who have already obtained golden visas won't lose them," Mr Costa said. "Those who now want to obtain a golden visa are also welcome, as long as their investment is made where it's necessary."

Parliament will have a final vote on the 2020 budget on Feb 6. The government targets the first budget surplus since Portugal's return to democracy four decades ago and the economy is set to expand for a seventh year.

Property prices increased 10.3 per cent in the third quarter of 2019 from a year earlier, the second-biggest gain in western Europe after Luxembourg, according to Eurostat.

In a separate proposal, the Socialists plan to stop some foreign residents from paying no tax on their pensions, an arrangement that led Finland and Sweden to criticise Portugal for having an unfair tax system.

If approved, foreign residents who apply for the so-called non-habitual resident programme will have to pay a flat 10 per cent levy on their pensions. The programme will continue to allow some foreign workers to pay a flat 20 per cent income tax rate. BLOOMBERG