Where to invest in Portugal?

The volume of alternative investments in the Portuguese economy has more than tripled.

The share of investors who prefer alternative options over the standard purchase of real estate worth €500,000 has more than tripled over the past three years.

The Portuguese SEF (Border and Immigration Service) released data for 2019. Thanks to a new reporting format, we can now access more detailed data on applicants' preferences. Until recently, SEF provided statistics only on two broad categories of investments: real estate and capital transfer. Now they have begun reporting on the subclasses of both categories.

Portuguese ARI offers eight investment sub-options (from the SEF website):

• Capital transfer of at least €1 million;
• Creation of at least 10 jobs;
• Purchase of real estate worth €500,000 or more;
• Purchase of real estate over 30 years old or located in urban regeneration areas for renovation, with a total investment of €350,000 or more;
• Transfer of €350,000 or more to research activities conducted by public or private scientific research institutions involved in the national scientific and technological system;
• Transfer of €250,000 or more to artistic production or support of the arts, for the restoration or preservation of national heritage through local and central authorities, public institutions, public corporate sectors, public funds, private funds, local corporate sectors, local associations, and public cultural associations engaged in artistic activities as well as restoration or preservation of national heritage;
• Transfer of €350,000 or more to acquire shares in investment or venture capital funds aimed at capitalizing companies. At least 60% of the investment must be made in commercial companies headquartered in the country;
• Transfer of €350,000 or more for the creation of a commercial company headquartered in the country. In addition, five permanent jobs must be created.

The published data shows that while the traditional option of investing in real estate worth €500,000 remains the most popular among investors, its share in the overall ARI program decreased from 93% in 2016 to 76% in 2019. The most popular alternative investment is sub-option 4, which involves investing €350,000 in buildings over 30 years old: its share has been growing rapidly since 2016. In that year, only one out of a hundred investors chose this option. In 2019, the share increased to one in six investors.

Only seven investors chose the recently introduced venture capital option. All seven cases occurred in 2019. The number of applicants who selected the €1 million bank deposit option (sub-option 1) has remained stable since the program's inception: it stands at 5%.

In the seven-year history of the program, only 17 investors have chosen the job creation option, which involves creating ten full-time positions. Options five and six have never been chosen.

Overall, in 2019, 1,245 applicants and 2,192 of their family members received approval, which is 12% lower than the 2018 figure and the lowest since 2015. The total amount of investment decreased. In 2019, applicants invested €742 million in the program compared to €849 million the previous year.

Since November 2012, the Portuguese investment program has attracted €4,992,253,830.95. It fell just €7 million short of the historic record of €5 billion.

The Chinese (54%), Brazilians (11%), Turks (5%), South Africans (4%), and Russians (4%) remain the most popular nationalities of applicants. Americans entered the top five in terms of investments for 2019.

In 2019, 65 Americans (about 5% of the total) received approval. The share of Chinese applicants is 31%, a historic low. For example, four years ago, this figure was at 85%.

“Golden” Residence Permit in Portugal for €280,000: Useful Information for Investors Choosing This Option

The latest changes in the Portuguese Golden Visa program, which will come into effect on January 1, 2022, and which we reported on the GARANT.in website, will inevitably lead to a change in the demand structure for Portuguese real estate. Recall that applicants for the "golden" residence permit in Portugal will no longer be allowed to invest in luxury residential real estate located in Lisbon, Porto, and certain areas of the southern Algarve region. This type of real estate in these locations accounted for the lion's share of all transactions under the Golden Visa program.

Market analysts and realtors working in Portugal are confident that now investors from third countries seeking to obtain a Golden Visa will be forced to:

• Pay more attention to other, less popular regions of the country;
• More frequently use the cheaper options provided by the program.

When Can You Take Advantage of the Cheapest Option in the Portuguese Program?

It is worth noting that, aside from the purchase of elite real estate, the Portuguese program also offers the option to acquire property with a minimum investment of €350,000. This option is available if the investor selects a property that is over 30 years old, requires renovation, or is located in a so-called “urban rehabilitation area” (ARU zone).

But even this relatively low level of investment is not the limit! If the specified property is located in areas with low population density or with a lower level of economic development (relative to the national average), a 20% reduction factor applies. This means that the minimum investment could be as low as €280,000.

It’s a modest sum, especially considering that the outcome is a Golden Visa for the main investor and their close relatives. Subsequently, after just five years, they will have the opportunity to obtain a Portuguese passport (an EU passport).

What You Need to Know Before Buying Low-Cost Housing

This prospect is quite appealing, but an investor choosing the €280,000 option faces two serious challenges:

• Where to find a suitable property to purchase;
• How to carry out the renovation or reconstruction of the building.

These are not easy questions, and we will now consider them, at least in general terms.

Finding a Suitable Property

As mentioned earlier, the reduction factor applies only to real estate located in special zones. The population density in these areas should not exceed 100 people per km², and the GDP per capita should be no more than 75% of the national average. Often, these zones are referred to as "rural areas with underdeveloped economies."

This may alarm potential investors from Russia or Ukraine, conjuring up images of remote, desolate rural areas far from civilization. However, the reality is far from this bleak picture.

First, Portugal is a small country, only twice the size of the Moscow region. Its configuration is narrow and elongated from south to north, and it’s possible to reach a major city from almost any remote village within an hour or two. Often, within 2-3 hours of driving, you can be in the capital, Lisbon. Moreover, Portugal’s road network is dense, and the roads meet European standards.

Second, you can find properties for €280,000 not only in remote rural areas. Portugal has many places that meet the program's conditions yet are still quite civilized. A great example is the eastern part of the southern Algarve province. This is a resort province popular with investors, known for its high-end real estate. However, starting in 2022, the purchase of housing in luxury resorts in the Algarve will be limited.

At the same time, these restrictions do not apply to the entire province! The territory between Faro and the Spanish border (eastern Algarve) has not yet been affected by the tourism boom. Small fishing villages in local municipalities meet the standards for "low-density population and underdeveloped economy" areas. Many of them are only an hour's drive from Portugal’s “golden resort triangle.”

Other good options can be found in the Central region or the Alentejo province. These are not necessarily tiny villages either. For example, the areas around the cities of Beja and Évora are quite interesting.

These cities are attractive in their own right, regularly receiving many tourists. Additionally, nearby is Lake Alqueva, popular with tourists from Spain (the border is close). Alqueva attracts both passive holidaymakers and hunters and anglers, and property here can be considered for use as a small hotel for tourists. This brings us to an important point.

Who Buys Property in Portugal’s Rural Areas and Why?

Undoubtedly, property outside major cities or resort zones will not suit every investor. According to observations, the following groups of people are most interested in such properties:

• People of retirement or pre-retirement age. They are attracted by the peace and closeness to nature, away from the hustle and bustle of modern civilization. For those seeking Portugal’s Golden Residence Permit, the fact that they will eventually become EU citizens and be able to live in Portugal while enjoying the high standard of European healthcare is significant.
• Young and energetic investors planning to turn their properties into small, popular eco-tourism hotels in Europe. Alternatively, they may be considering serious involvement in the farming business.
• Various freelancers work mainly remotely and naturally prefer a quieter life away from the hustle and bustle of big cities.

We have already mentioned some places where one can expect success in developing a mini-hotel. When it comes to farming prospects, the central and northern provinces of Beira, Douro, and Alto Douro are more suitable. These regions offer excellent opportunities for viticulture and winemaking, olive growing, and cork oak cultivation. In some cases, eco-tourism and winemaking can be successfully combined.

Renovation: Financial Investment and Legal Formalities

When choosing the “property for €280,000” option, an investor will inevitably face the need for serious repairs or reconstruction of the building. This task is not an easy one. It will require considerable financial resources, time, and effort, becoming a kind of price for the low cost of the project. However, it’s important to remember that these expenses will be fully compensated in the end.

In terms of financial investments, one can expect to spend an average of €200 to €400 per m² on repairs. In the case of significant reconstruction, the final cost may match or even exceed the price of the property itself. This should be considered when deciding on a project. When you have an estimate for the planned work, be sure to add 10-15% for hidden costs that you cannot see now, but which will inevitably arise.

Important! The duration of the renovation can be extended over several years, easing the financial burden on the investor. Additionally, the law allows non-residents to take out a mortgage from a Portuguese bank. The loan amount cannot exceed 70% of the property’s valuation. The interest rate for non-residents averages 3.5% to 4.5% (lower for Portuguese citizens).

It should be noted that it’s unwise to count on avoiding renovations altogether. Typically, old buildings in Portugal’s provincial regions are in poor condition and do not meet modern standards. In particular, they almost certainly lack central heating and often lack sewage systems.

Legal Aspects of Renovation

These are as important as the financial side. All permits and documents must be processed through local municipal authorities. In large cities, this bureaucratic process can take a lot of time, and it is often necessary to delegate the task to your notary (lawyer). In the provinces, administrative matters in municipal offices are usually resolved much faster and easier, without queues, which is a huge advantage.

According to Portuguese law, you cannot start repairs or reconstruction without having the project documentation. For work that changes the exterior of the building, permission from the municipality’s architectural department is also required. Note that a certified architect must be hired for such design work. If you’re lucky and the previous owner of the property already has these documents, make sure they have been approved by the municipal authorities.

Often, approval for reconstruction requires obtaining several separate engineering projects (for electrical work, hydraulics, communications, etc.). These must be approved not only by the municipality but also by the relevant specialized organizations.

The final part of all preparatory work is finding a construction company that will carry out the work. It’s better if at least some of the builders speak Russian. It’s relatively easy to find such contractors in Portugal but keep in mind that part of the engineering work must be carried out by builders with the appropriate licenses.

Important! At all stages of the work, we advise maintaining close contact with municipal officials. In small towns and rural areas, they are usually willing to help investors and share all the necessary information. Often, unlike local builders, they also speak English.

Moreover, even if you trust your contractors, it’s useful to personally monitor their work as often as possible and only pay them upon completion of the work.

Important! All the above-mentioned challenges need to be addressed by investors who decide to buy property independently. However, our company, when offering clients properties requiring renovation, takes care of all the organizational aspects of the renovation work.

Thus, we advise potential investors to take a closer look at the option of obtaining a Portuguese Residence Permit for €280,000. Despite certain challenges associated with this path, the experience of many investors who have pursued it shows that it can indeed bring not only profit but also open up a new, interesting, and successful chapter in your life.