By Aileen Zhao
Portugal’s Golden Visa program (a residency by investment program) is an immigration plan that allows non-European Union (EU) citizens to obtain Portuguese residency through purchasing properties or other forms of investment.
Since 2023, it is no longer possible to acquire the Golden Visa through property investment in major urban centers, particularly in the Lisbon and Porto regions. The eligible property investment areas have been restricted to inland regions and the Azores and Madeira autonomous regions.
In essence, this change marks the end of the property-based investment immigration policy for the Golden Visa in the main cities of Portugal. However, this new development could also create an opportunity for foreign investors interested in obtaining a second residency in this European country through shared ownership investments.
WHY PORTUGAL ENDED THE REAL-ESTATE OPTION IN ITS GOLDEN VISA
The adjustment reflects the Portuguese government's effort to balance the interests of its citizens, residency-driven overseas investors, local developers, etc.
With a 280,000-euro investment in Portuguese real estate to leverage a high-value EU residency, Lisbon had long been a popular investment destination. However, the influx of foreign investors into the local real estate market drove up residential property prices in Lisbon by around 50% over a decade, leading to a supply-demand imbalance and increasing market uncertainty. It directly impacted the rising housing costs for local citizens and negatively impacted overall economic stability.
In response, the Portuguese government adjusted its immigration policy, halting the golden visa’s property-based investment immigration option in areas like Lisbon. The intention was to alleviate excessive congestion and resource pressure in major cities while, at the same time, allowing investors to still be eligible for the golden visa application. The market’s feedback played a significant role in driving the Portuguese government to continuously adjust its immigration policies while ensuring that the core principle of mutual benefits is upheld.
The case of Portugal’s golden visa program is instructive for the investment immigration industry. Restricting property investment to specific regions was just one aspect of the ongoing transformation.
Despite the shift in investment destinations, the change’s negative effects on housing market supply-demand dynamics and price increases are only a matter of time. But rather than waiting passively on the old path, changing tracks is a long-term strategy.
RISING OPPORTUNITY FOR SHARED OWNERSHIP IN PORTUGUESE GOLDEN VISA
Subsequently, a form of shared ownership investment for hotels has emerged. As a novel alternative in residential property investment, it’s a more sustainable and secure option for foreign investors in Portugal.
The impact of commercial hotel operations on the livelihood of local citizens is relatively low. What’s more, for a country with a highly developed tourism industry, developing the hotel industry in Portugal is crucial. Thus, hotel investment would be a win-win situation for investors, developers, the government, and other stakeholders.
Yet, residency by investment investors prefer obtaining immigration status over making profitable investments. Although some could have enough financial stability, it is unlikely that they would willingly take on such substantial financial security risks. After all, they have a better alternative: investing in a portion of the hotel.
Nonetheless, shared ownership allows individuals to invest in high-value properties or desirable locations that would otherwise be financially out of reach. This form of investment diversifies capital injection and responsibility, making it a particularly economically viable option.
While investors contribute collectively and share costs, each remains independent during the immigration application process. After investing in their respective share and obtaining shared ownership certificates, they can proceed with the immigration application without being influenced by other co-owners.
WHAT IS SHARED OWNERSHIP AND ITS PRESENCE IN PORTUGAL
What is shared ownership, and how does this type of investment in hotels benefit applicants in investment immigration applications? Is the benefit exclusive to immigration applicants?
Shared ownership is a broad concept, and some countries or regions have established formal regulations or policies to govern shared ownership models, making it easier for buyers to complete property purchases. It is a home-buying model traditionally targeted to buyers unable to fully pay the entire property purchase price to acquire partial property ownership.
The concept is recognized worldwide. For example, Shared Ownership is a government-supported home-buying plan typically provided by UK property developers, real estate, or housing associations. In Australia, shared ownership is a home-buying model called Shared Equity. There’s a shared ownership model called "Incentivo ao Arrendamento Acessível," which translates as "Affordable Rental Incentive," in Portugal.
The scope of application for the shared ownership model has expanded in Portugal. The country is an attractive destination for residential, commercial, and other real estate investments with a flourishing tourism industry, picturesque coastline, rich history, and culture.
A practical investment case of a hotel project in the Algarve region of Portugal effectively demonstrates the feasibility and advantages of hotel-shared ownership investment in the country’s Golden Visa program. Algarve is the most vibrant region in the Portuguese tourism market, accounting for two-thirds of the entire country's tourist population.
In 2019, Portugal received 27 million tourists, with the Algarve region alone welcoming 20.7 million. The area holds a significant share of Portugal's tourism and hotel market. An existing quasi-five-star hotel in Algarve, affiliated with a renowned hotel brand, openly recruited investors with a limited quota to invest 280,000 euros per share for shared ownership of the hotel. The developer provides investors with a collective exit mechanism, committing to seeking bulk buyers through reasonable business means within the stipulated timeframe.
BENEFITS AND CHALLENGES OF SHARED OWNERSHIP IN PORTUGAL’S RBI PROGRAM
Some may question the option of shared ownership, especially in significant actions such as asset management and sales, etc., involving numerous investors in collective discussions and voting to make decisions. This process requests severe trust and alignment of shared visions among various parties, with subjective influences potentially playing a significant role, making it less conducive for individuals pursuing straightforward property investments.
However, the collected group of investors who prioritize immigration status over investment reduces the impact of subjective influences on shared ownership investments. With all the investors sharing common goals, completing investments, obtaining shared ownership certificates, and submitting immigration applications seamlessly, it would be a successful ending with obtaining residency in one go while, at the same time, the investment return becomes a bonus.
Being a socially oriented activity, hotel operations involve the government, developers, investors, citizens, and others, garnering greater regulatory oversight and attention. Hotel shared ownership investments entail a range of legal, financial, and business factors that require the involvement of professional teams.
Legal teams ensure investors understand and comply with relevant legal requirements and review and draft contracts to ensure reasonable transaction terms and conditions following the law. Meanwhile, financial teams conduct due diligence, assess the financial health of hotel operations, assist in formulating investment budgets and financial plans, analyze investment returns, and evaluate financial risks. In addition, market research teams assess the hotel's location's market outlook and development potential. Unlike residential investments, where investors can face risks due to limited personal investment experience, multiple professional teams help mitigate risks in hotel-shared ownership investments.
Portugal's Golden Residence Permit Program explicitly states that “the real estate may be acquired in a co-ownership regime, provided the Applicant for the ARI invests an amount equal to or above 350 thousand euros, 280 thousand euros in a low-density territory – NUTS III level, in the acquisition and rehabilitation, as well as through a shareholder limited liability company in which the Applicant is the shareholder.” Therefore, the legislation ensures the feasibility of obtaining residency through shared ownership investments.
The option of shared ownership investment could be a future trend in property-based investment immigration programs. Then, how does shared ownership investment in hotels benefit applicants in investment immigration applications?
Driven by investors' immigration-oriented investment motivations, developers offer a friendly policy of assisting shared ownership investors with a collective exit. This friendly policy facilitates sales and ensures a quick recoup of funds to reinvest in new projects, which is a win-win situation for both stakeholders. In addition to the collective exit mechanism, developers provide other perks such as reduced transaction taxes and renovation value-added taxes, fixed rental income from the hotel, and profit-sharing from hotel operations.
These incentives indirectly offset investors' investment amounts, allowing them to obtain immigration status securely and cost-effectively. The two parties are attuned to the same direction and determined to make things happen.
SHARED OWNERSHIP INVESTMENTS ARE A GROWING TREND
The rise and fall of the Portugal Golden Visa property purchase model makes the emerging hotel shared ownership investment model more promising.
Governments with investment immigration programs, international investors, property developers, immigration industry service providers, and all stakeholders should pay attention to and draw lessons from Portugal's experience.
In summary, the Portugal’s golden visa attracted substantial foreign investment, driving robust growth in the Portuguese real estate market and creating business and employment opportunities for property developers and related stakeholders. This investment tied to immigration status not only stimulates the economic contributions of new immigrants but also brings numerous benefits to the Portuguese government, including economic gains, employment, and an enhanced international image.
By suspending the property purchase route, the government aims to balance its citizens' interests, residency-oriented overseas investors, and local developers, achieving a comprehensive win-win situation among various stakeholders.
In this context, shared ownership investments are trending towards a more mature and diverse future, and those who adapt to change first will ultimately emerge as the winners.
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