Planning for the Golden Years
Planning for the Golden Years:
the modern-day “Gold” rush in the California of Europe
Anyone who is nearing or at retirement age wants to protect his or her hard-earned pension. Many want to do this in a safe country with a warm climate, friendly people and a great lifestyle.
Equally, many people from outside Europe aspire to have free access to, or live on, the “Old Continent”. As do those who have a highly mobile lifestyle but want a base in a low-tax environment.
Now one country has made it easy to do all the above.
Racking up the accolades
World’s and Europe’s Leading Destination 2017. 3rd safest country in the world. 7th friendliest people. 12th best healthcare. World’s best golfing destination. Europe’s best beach destination. Lowest cost of living in Western Europe. Lowest property purchase taxes of any Southern European country. Near the top of the rankings in the Quality of Nationality Index meaning its passports makes it among the best options for visa-free travel.
Portugal. The ugly duckling turned swan.
A few years ago, no one wanted to touch it. The IMF was bailing it out. The English were calling it names – one of the PIGS. Even the Prime Minister publicly encouraged its youngsters to emigrate (interestingly, many are now returning, with half a decade of additional international expertise to offer their land of birth).
Now, fastest growing European economy in Q1 2017. Eight years of record-beating tourism numbers. New host of the Web Summit, the world’s premier IT and emerging technology investment conference. Land of the birth of the President of the European Commission, President of the Eurogroup, and the UN Secretary General. 10th largest exclusive economic zone in the world, 97% of which is sea. A country punching above its weight.
Whimsical waves: a replica caravel sails over tranquil waters along the pristine Algarve coastline near Benagil And home to Europe’s most popular Golden Visa program.
The most golden of Golden Visas
Why, you may ask, if Spain has several times more visitors than Portugal and there are more Spanish-speaking people in the world, and if Greece has a Golden Visa investment level half that of Portugal, has this small country on the Western edge of Europe become the most popular destination for those looking for residence in Europe via investment?
The reasons for the approximately €4 billion invested in this program to date are varied and many:
⦁ In addition to the Golden Visa itself, the Portuguese nationality and passport, are highly sought-after. With visa-free travel to 157 countries, a Portuguese passport is among the world’s top 5 for hassle-free travel;
⦁ Portugal has 79 double tax treaties signed with other nations. This is relevant because it underpins the country’s highly successful NHR (Non Habitual Resident) program, which broadly allows eligible applicants to pay no tax on any foreign-earned income (including pensions);
⦁ Portugal has no wealth taxes (except for a newly implemented real estate tax for individual property ownership greater than €600K (based on fiscal value which is generally lower than market value or purchase price) or joint ownership above €1.2 million)
⦁ There is no inheritance tax and owning property in own name is very efficient
⦁ Property is sold freehold, with rare exceptions. The land registry is among the most reliable in the world. Property is fully documented and protected
⦁ Permanent right to reside after 5 years (with no requirement to reside, unlike Spain and Greece)
⦁ Easy family aggregation providing the family with the full right to reside, work and study
⦁ Very few nationalities are “excluded”: it is the analysis of the person’s individual circumstances and history, together with the source of funds, which are relevant to any application.
The Portuguese Residency by Investment (better known as the Golden Visa) was launched by the Portuguese government in October 2012, but only saw its first approved candidates in the second half of 2013. It is a fast track method for foreign investors from non-EU countries to obtain an authorisation to reside in Portugal and can be summarized as follows:
⦁ Permanence requirements include 1 week in the first year and two weeks in every subsequent two-year period. Applicants are free to travel within the Schengen vis travel area
⦁ First entry must be via a valid Schengen visa or visa waiver program
⦁ Applicants have the right to work if they wish
⦁ Citizenship and a Portuguese passport can be obtained after 5 years of residency. A basic Portuguese language test must be passed
⦁ Applicants must not have a criminal record, be banned from entering the country or be flagged in the Schengen system
⦁ Initial application fees are around €5,200 per family member with two-yearly renewals at 50% of that value. Legal fees can be just as high but many smaller solicitor firms and other expert partners are able to deliver this service for a much lower cost – in some cases absorbing it into their conveyancing fee. Find a local partner who can make suitable introductions to a range of experts.
The most popular route to investment is via the purchase of real estate, under the following rules:
⦁ Standard investment is €500,000, sourced from funds brought from outside Portugal without recourse to credit or debt financing. Any amount above the GV threshold may be financed
⦁ Any type of real estate qualifies. Shared or co-ownership applies as long as the minimum threshold is met per investor
⦁ A reduced level of €350,000 for approved rehabilitation projects in properties of at least 30 years. The criteria for qualification are strict and for most investors this is not a practical solution
⦁ Either of the above levels maybe reduced further by 20% if located in a low population density area. An excellent opportunity exists in key municipalities in the country, one of which is discussed in this article
⦁ The Golden Visa investment can be sold after the 5 year period
Setting out your stall and claiming your stake
Just as those who trekked across the US to find fortunes in California depended on staking their claim to the right plot of land, so too selecting the right region for investment is crucial in Portugal. Factors such as ease of resale, likelihood of appreciation, and rental yields, must be taken into account before deciding where to invest. Crucially, if the property is to also become a family holiday home or a permanent place for work or enjoy your golden years, then a match to holiday requirements for the family, to airports with good international connections or to a place which offer a balanced lifestyle and cost, must be factored.
Experience has shown that most, if not all, who visit it will fall in love with something: those from Canada and the US love the authenticity combined with first-world infrastructure; those from Latin America see the gateway to Europe as an opportunity to have a foot in Europe while retaining traces of home, including a similar language; those from Asia are impressed by the family-friendly environment and the openness to multiple cultures.
But beware Portugal’s beguiling charms: not every region is a match for every investor. Tourism is one of Portugal’s largest industries and exports and there is a reason why the Algarve and greater Lisbon are, respectively, the two largest tourist destinations in the country.
Sunshine is a main factor. And the further north one goes, the less you see it, especially in the rainy winters. So even if you are enamored with the Douro valley, spanned by myriad bridges and traversed by port-wine bearing barges, consider whether you will accept gray skies in the winter and less intercontinental airline connections.
People. Another major driver. While you may fall in love with an inland area such as the beautiful Alentejo, with its world heritage sites and golden fields of barley, it is an area with small villages and with low population density. Great for buying cheaper properties but not great to obtain a yield. Greater travel distances. Less English spoken. Very quiet in the winter.
Planning your approach
Keep your options as open as possible. If you are looking for a Golden Visa and residence, then stay as close to the purchase limit as possible. That way, you ensure that you are able to resell or, if you need to keep the property, you will stand a better chance of not being out of pocket.
Look for reduced investment Golden Visas, avoiding areas which have seen huge price increases. Look for regions which might still be undervalued. And most importantly, if you want to generate revenue, look at where the source of demand is.
David vs. Goliath?
Lisbon. Nation’s capital and center of government and power. A fantastic weekend destination, with plenty of historical monuments, culture, gastronomic options, cheap travel and excellent beaches not far away. Great for workers, especially mobile ones. Pretty good for retirees if you don’t mind the hills, are happy to take safe and cheap public transport or hop in an equally inexpensive cab. Best range of healthcare options.
One problem: a booming real estate market that is starting to look very much like a bubble. Think Golden Visa. Add exploding Chinese middle market. Overlay with a €500,000 Golden Visa limit. Net result: any owner of a 2-bedroom apartment in the city thinks they can ask for €500,000 from a foreign buyer. Local buyers don’t even bother trying to buy those types of properties anymore.
The Algarve. One of the world’s top tourist destinations. Portugal’s number 1 spot for both national and foreign visitors. Great for sports lovers: walkers, ramblers, surfers, golfers. Excellent for fish and sea food lovers, but then again, so is Lisbon. OK for culture. Good set of public and private healthcare options.
Two advantages: much better bang for your buck in real estate terms. And better weather.
Algarve: Best Place in the World to Retire
The tourism crown jewels are the country’s southernmost province, the Algarve, with beaches of golden sands, cliffs of golden light and sea of azure that many mistakenly think is on the Mediterranean. Even the cool Atlantic seems to be warmer in the Algarve, voted seven years in a row “Best Place in the World to Retire” by the Overseas Retirement Index.
The Algarve has mostly been overlooked until now as a destination for the Golden Visa, primarily for the following reasons:
- Those nationalities showing most interest to date, namely Chinese and Brazilian, who have jointly invested almost €4 billion, want urban locations such as Lisbon;
- Many who like a more suburban feel, such as South Africans, Americans, Turkish, Russian and the remaining Brazilians, have been shown Cascais by local agents. Only some investors have managed to remain at the €500,000 level due to the upmarket locations and property which are being shown. Investors are almost inevitable being upsold into spending more than the required amount;
- With Lisbon prices climbing to historical highs and buyers priced out of the market, the Golden Visa wave has broken on the shores of Portugal’s northern city, Porto, which has seen its real estate prices also rise dramatically;
- The first wave of GV buyers was looking for new or recently refurbished properties. As the country has seen new construction at a standstill since the 2008-9 crisis, there has simply been insufficient inventory available. The Algarve reflects this situation, with new-build properties representing a price per square metre at the very top end of the national average.
However, the region offers a very interesting variety of Golden Visa options and much more variety, in our opinion, than any other highly desirable location in the country. With the Algarve already the country’s top tourist destination and the region’s economy relying heavily on this sector, Golden Visa product should not affect the local residential market nor disproportionately inflate prices, as has been the case in the Lisbon and Oporto markets, because its appeal will continue to be to the foreign market. In fact, the Algarve’s Golden Visa product should increasingly act as a catalyst for the injection of more investment into the region’s tourism sector, by diversifying the “simple” €500K which has typified the region to date.
Research and knowledge: your pick and shovel
If the residence visa is your main aim, stick to your objective. Numbers first. Many beautiful villas can stretch your budget by hundreds of thousands of Euros. And there is always a more beautiful and more perfect property to be found.
Choose a partner who will be aligned with your objectives and budget. Consider entering into a buyer agreement with someone who can work for you rather than earning their fee from the seller.
If you are thinking of settling, ensure you take a Discovery Tour. Get an experienced company to show you the areas and examples of real estate within each, before taking the plunge. Rent before you buy if you are not sure. Ensure that you have found a place where you can live in the quieter winters and the busier summers.
Be aware of the regional subtleties:
⦁ Higher yields are more difficult to achieve in the greater Lisbon area because prices are higher (even though rentals are also higher)
Properties in the Algarve come furnished, increasingly to a high standard. Lisbon properties are unfurnished unless specifically set up for short-term lets
⦁ Lisbon is a year-round destination even though the winter is slower than the summer. Either weekly lets or annual lets are the preferred model. The Algarve still experiences great variations between summer and winter. But as properties are furnished, weekly summer rentals can be combined with monthly winter lets for maximum return.
his is realistically only possible in the Algarve.
Eldorado: combining location with value for optimal Golden Visa value
With Lisbon overpriced and good deals increasingly difficult to find, the Algarve should at least be on investors’ short-list. The key should be to look for good value for money opportunities. The Algarve is a narrow strip of land where most of the development is concentrated near the coastline. The main factors for optimal value in the region are proximity to the coast (15 minutes maximum, less is better), distance to golf course (again, near the coast and you are guaranteed to be within 15 minutes of one) and being south of the region’s A22 highway.
When overlaying this with quality real estate or modern or contemporary construction, many of the region’s properties are priced well above €500,000. Well known for the extremely exclusive (and equally pricey) real estate is the Golden triangle which encompasses Quinta do Lago and Vale do Lobo, where two bedroom apartments are easily between €650,000 and €1 million, and a 3 bedroom villa worth millions of Euros. Upmarket areas such as Vilamoura, Carvoeiro and the Lagos municipality are less expensive but all of them still require a minimum €500,000 Golden Visa investment.
Travel to the province’s western-most municipality, most famous for Henry the Navigator’s maritime school in Sagres and the country’s second most popular surfing location, and you will find an area of stunning natural beauty, of imposing cliffs, mile-long beaches and one of the country’s largest natural parks along the Costa Vicentina. Because its natural landscape is mostly untouched by large-scale development, the number of residents is still low.
Therein lies the opportunity for Golden visa applicants: in low- density population areas the investment threshold is reduced by 20%, to €400,000. In this region, some stunning Golden visa opportunities exist. Quality contemporary properties; resorts (including golf resorts) with multiple services; and amenities and well-located properties perched atop coastal villages, offer excellent opportunities in a region which combines natural beauty and proximity to wonderful beaches, with the benefit of the Algarve’s tourism growth.
The municipality continues to benefit from the Algarve’s eight years of record-beating tourism as well as the demand by permanent residents, many of whom retirees, for sunshine, great lifestyle and low taxes / cost of living.
Examples of the great Golden Visa deals on offer include a fully furnished executive 3 bedroom golf course villa, with shared pool, expansive golf views and access to a wide range of amenities including golf, on-site restaurants, spa, and tennis, for under €415,000 and which comes with a fixed guaranteed income in the first year. This property, well managed, can easily generate a gross yield of 6-7%. A smaller 2-bedroom property on the same resort with two years of guaranteed 5% revenue is for sale at €400,000.
Just down the road, luxury 4 and 5 bedroom villas on a leading eco-resort can be bought for between €400,000 and €500,000. It is also possible to “package” up several plots, complete with full planning, which can be held for later resale or used to build single-family villas or townhouses.
Finding residence, lifestyle and solid investment is very much possible if you know where to look! Enjoy your golden years the best and smartest way!