Below, we summarise the main points of interest.
A different scenario to 2008
Charles Roberts, whose business covers central and northern Portugal, with a particular focus on Lisbon, Porto, Sintra, Cascais and Estoril, as well as Comporta to the south of the capital, said the situation now is completely different for the Portuguese property market when compared to the global financial crisis.
Fine & Country predominantly manages foreigners buying property in Portugal, from the middle to the upper end of the market.
“After the 2008 banking crash, all of our traditional buyers disappeared off the map. Totally. There was virtually zero market 10-12 years ago,” he said.
“Gradually, things have changed since then. First, there was the schemes introduced by the Portuguese government to kickstart the economy, in addition to dramatic changes to the rent laws. This made it possible to relocate tenants paying peppercorn rents in old buildings and allowed developers to purchase those, renovate them, in many cases retaining the facades, but inside creating 21st-century apartments for sale.”
The effects of that are there for all to see, in the historic areas of Porto and Lisbon, he said.
Another important factor in Portugal’s renaissance, Roberts added, was the growth of sites like Airbnb, Booking.com and HomeAway, which quickly enabled investors to generate an income fairly easily from a property they had bought.
“Properties that were previously unattractive to investors, because they were in central Lisbon, without parking, was exactly the property to put in an Airbnb, because the tourist doesn’t want parking, doesn’t want a car, they want to walk everywhere.”
This created another new, niche market, which was augmented by the Golden Visa programme – which started in earnest in 2013, and allows people to obtain residency through investment in property – and the NHR (Non-Habitual Residency) scheme.
The Golden Visa, only available to non-EU citizens, provides the opportunity to secure a 5-year residency permit, valid throughout the Schengen area. At the end of the fifth year, you have the option to apply for a Portuguese passport. Those in Britain can have both a Portuguese passport and a British passport, as dual nationality is allowed.
The NHR scheme, meanwhile, offers foreigners the chance to benefit from favourable taxation rules in Portugal for a guaranteed period of 10 years. People pay negligible tax on pension and investment income in Portugal and in most cases zero tax in their country of domicile, Roberts said.
“These two schemes created a surge in the property market in prime areas of Portugal. There was a boom from 2013 to 2018, where demand exceeded supply. Since then, the market has somewhat stabilised and prices are currently rising by about 5% per annum,” he added.
From 2017 to date, Roberts continued, there has been a return of that traditional market in Portugal, pre-2008 – of people looking to buy a second or holiday home, or live there permanently. This is further reinforced by the schemes on offer, which simply weren’t there before the financial crisis.
He says the current market has naturally been affected by Covid, with people unable to travel and in most cases unwilling to invest sight unseen. In that sense, the market is currently on standby.
“But the volume of enquiries hasn’t fallen at all – and these aren’t just general enquiries, but very specific ones.”
He also expects there to be a bounce-back surge once flights fully return, whenever that may be. A taster of the resurgence came last year, when there was that brief period in the summer of relative normality. Comporta, an area full of open spaces and low-density construction, experienced a boom as people sought space, privacy and natural beauty.
“That’s what happened then and that’s what will happen again after lockdown,” Roberts insisted.
Priorities have changed inside the house, too. “People want terraces, they want space for a home office. What clients want now is more sophisticated than a decade ago.”
He remains positive things will come back and that Portugal has a very good future in Europe. And he believes Portugal’s character and fundamentals will continue to make it appealing to second home investors.
“It’s a very accepting, non-discriminatory country. It doesn’t care who you are or where you come from. One of the joys of Portugal is its diversity. Lots of different nationalities, cultures and cuisines. Language skills here – English particularly, but also French – are superb,” he said, adding that people who don’t speak Portuguese needn’t worry about fitting in or assimilating into the country’s way of life and customs.
“Lisbon and Porto are becoming wonders of the world,” Roberts claimed. “They are being promoted as being a worthwhile place to visit, influenced by the regular flights on offer from budget airlines.”
The country has also been opened up to places further afield, such as Australia, South and North America, South Africa and Abu Dhabi, thanks to enhanced air routes. With most people wanting to visit a destination before owning a property there, such links are important to Portugal – which still relies heavily on direct foreign investment.
Lastly, Roberts points to the weather. “We have 270 days of sunshine here. I always say Portugal has three seasons. It doesn’t have a winter. Summer, spring and a long autumn. This, as well as residency/tax benefits, affordability, and the easiness of Portugal, all make it appealing to investors.”
After the webinar, Nuno Almeida – a sales consultant at Fine & Country Portugal – answered our question about whether the Golden Visas will end for some parts of Portugal from July 1 2021 and whether it’s really the best route of investment for overseas buyers.
“Regarding the Golden Visa, nothing has yet been approved relative to the lesser dense areas, and expectations are that the initial, main visa will continue and be underlined in the coming months due to the Portuguese necessity for foreign capital investment,” he said.
“Even with Brexit, UK investors, now considered non-EU citizens, are allowed to apply for the Golden Visa. All applications up to June 31 2021 will be accepted under the original programme.”
He also points to the NHR tax regime, which provides a very low tax deduction on pensions. “Under NHR, most income from a foreign source is exempt from Portuguese taxation for 10 consecutive years, as is income that is taxable in another country,” he stated.
“This means that British expatriates can potentially receive most UK rental income, capital gains on real estate, interest, dividends and non-Portuguese employment income tax-free.”
He says this can apply even if the income is not actually taxed in the home country. As an example, UK dividends (excluding gains on UK shares) escape Portuguese taxation under NHR because they are taxable in Britain under the UK/Portugal double tax treaty.
“In practice, however, the UK’s ‘disregarded income’ rules can eliminate UK tax liability for non-residents. As a result, you could end up paying no tax – in either country – on UK dividend income.”
Until recently, NHR allowed for most foreign pension income to be taken tax-free in Portugal. However, the 2020 Portuguese Budget introduced a flat 10% tax.
“The good news is that, if you already have NHR status or applied for Portuguese residence before the new regime took effect on April 1 2020, you can still come under the previous rules. This means you will remain eligible for exemptions on foreign pension income for the remainder of your 10-year NHR period.”
He added: “Even if you miss this window, 10% is a relatively low rate to pay on pensions, and significantly less than the usual Portuguese income tax rates of 14.5% to 48%.”
Almeida concluded: “Note that UK government service pensions – including local authority, army, police, teaching, fire service and some NHS pensions – are the exception. These pensions do not come under NHR rules as they remain taxable in the UK only. For the best results, take specialist, cross-border advice before making any major pension decisions.”
You can see a video of the webinar at the bottom of this article.
Petition calls for better terms for second home owners
As the fallout from Brexit continues, and people continue to be concerned about their ability to invest in Europe in the new landscape, a petition to the UK government has been launched to aid second home owners.
It is asking the government to negotiate better terms for owners of second homes in Europe post-Brexit, allowing them to spend a total of 180 days, split at their discretion, rather than being restricted to 90 days in each 180 day period.
The blurb for the petition, which urges the government to negotiate more favourable post-transition travel rules for UK citizens, says the following:
From January 1 2021, UK citizens travelling to the EU will only be allowed to stay a maximum of 90 days in every 6 month period.
The government must negotiate reciprocal treatment for its UK citizens, meaning allowing stays of at least 180 consecutive days.
The new rules will mean that if someone stays in a country for three months continuously they will then not be allowed to return to that country for another three months.
This is extremely unfair to the millions of Britons who own second homes all over Europe and have been splitting their life between the U.K. and another EU country for decades now.
The petition, created by Sawsan Bay, currently has just over 5,300 signatures of the 10,000 signatures it needs for a government response.
A much larger 100,000 signatures is required for the petition to be considered for debate in Parliament.
You can sign and share the petition here.
This post has originally been featured in Property Investor Today.