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Low Prices, the Cristas Law and Safety Explain Portugal’s Invasion by Foreigners
29 May 2018
The concession of golden visas and tax policies favouring foreign investors are not the sole basis for the Portuguese real estate market’s international success. Low prices and the rental law have also helped drive growth. However, changes are afoot.
The increasing number of initiatives that are under discussion in Portugal’s National Assembly targeting changes to local housing regulations and the urban rental market, together with the volume of news that has been in the public eye in recent months concerning evictions of long-term tenants and letters sent by property owners warning their decision to not renew rental contracts – which some call psychological terrorism, and others call real estate bullying – are helping to build awareness of the difficulties that Portugal’s housing market is facing.
On the one hand, there is the problem of fast-rising real estate prices. Yesterday, the National Institute of Statistics (INE) confirmed that the average value of bank valuations has risen for 13 consecutive months, reaching 1,171 euros per square meter – the highest value since the summer of 2010.
On the other hand, there is the problem of properties, principally in Lisbon and Porto’s historical centres, being sold to investors who convert them for use in the tourism sector – either through local accommodation or through the construction of hotels, “condemning” the centres of these cities to be inhabited by a transient population. However, there is also the problem that prices in the rental market are so high that it becomes impossible for a middle-class family to afford a home in the city centres. Some of these problems are being addressed in the Portuguese government’s New Generation of Housing Policies.
The problems currently afflicting the housing market are complex and not exclusive to Portugal. Earlier this week, the German government, for example, launched an ambitious public housing program in an attempt to depress real estate prices. Faced with this environment, the question arises as to why so many foreign investors are buying homes in Lisbon? That was the question that the economist Joaquim Montezuma and the geographer Jennifer McGarrigle, both based at the University of Lisbon, decided to answer in their article ” What motivates international homebuyers?” published last week in the international journal” Tourism Geographies.” Their conclusions allow for several interpretations.
Economic origin and political context
First, there is the undeniable success of government programs such as Residency Permits for Investment (ARI), better known as “golden visas”, and tax policies that exempt or subsidise the tax payments of foreign citizens who wish to maintain a second home in Portugal.
“But other countries, notably in Europe, such as Malta, Greece, and even Spain itself, have the same types of incentives, though not the same level of growth,” Mr Montezuma explained in statements to Público.
The researcher at ISEG also works at ImoEconometrics, a company that advises companies, studying the real estate market, conducting feasibility studies and valuations for international investors. The researchers interviewed intermediaries for these investors (through law firms, which have been very active in this market) and real estate agents and developers. After cross-checking their answers with data published by the Foreigners and Borders Service (with regard to nationalities and investments) and with existing scientific literature on the subject, the researchers concluded that the current rental law (launched by Passos Coelho and supported by Assunção Cristas) and the attractiveness of the current average sales price per square meter (compared to other European cities) were as or more relevant than the other two factors.
“And safety issues too,” Montezuma added, referring to the case of a Brazilian investor who commented that when he lived in Sao Paulo, Brazil, he spent more on security than he spent in Lisbon with his house and his children’s schooling.
The high level of Brazilian investment in the real estate market in recent years is largely explained by the Brazilian political and economic crisis and by the changes that have arisen in the traditional markets for international housing investment. Until recently, markets in Canada, the United States and the UK have always been at the forefront. They began to lose ground because of the Trump administration’s immigration policies, Brexit, and changes to the tax code in Canada. For the Brazilian upper class, which made many investments especially in Florida, living in Portugal became a good alternative.
However, the vast majority of these foreign investors do not even intend to live in Lisbon or Porto. At least in the immediate future – many value the possibility of having a backup home here, where they can come or send their children when they see fit. Investors from China, the Middle East, Russia and Turkey are looking for haven. According to Montezuma’s article, many of these investors are in Portugal for less than a month each year. The rest of the time they place their properties in the rental market (local accommodation), or they choose to leave their property unoccupied, satisfied with the security of the investment or with associated guaranteed access to the whole European market.
According to Montezuma and McGarrigle’s study, another group of investors include buyers from European countries such as France, Belgium, the United Kingdom and the Nordic countries. These investors are in fact looking to spend more than six months in Portugal, taking advantage of its “quality of life,” including the climate, cuisine and cultural and social life so often cited in international publications. They are mainly professionals, who choose to work from Portugal, where the cost of living is lower than in their home countries.
The rental law and market prices
All investors, however, expect a return on their investments. Here is where the Rental Law and the affordable price of Portuguese real estate, especially when compared with other European countries, assume greater relevance. The 2012 Rental Law, also known as the Cristas Law, provided incentives to those investors by speeding up the mechanisms for terminating rental contracts and increasing rents. The price of real estate remains more appealing than in cities like London, but it is approaching or even surpasses the prices in cities like Barcelona and Madrid. The Global Property Guide index that evaluates the most expensive cities in the world shows the difference: the price per square meter in London is 17,324 euros; in Lisbon, it is approaching 4,800 euros.
What worries those on the ground is the fact that prices are increasing not only in city centres but also that prices are becoming less and less accessible in an increasingly wide area of the cities. “These are matters that the market will have to correct,” Montezuma comments.
The interventions that are being prepared for the housing market, where a Basic Law is under discussion, and changes in the rental market are some of the aspects to which investors should pay particular attention in the following months, given the potential impact that any such changes may have on the market, the specialist concluded.
Original Story: Público – Luísa Pinto
Photo: Nelson Garrido
Translation: Richard Turner