From January 1st, 2022 onwards, residential properties in Lisbon, Porto and many coastal areas will no longer qualify for Golden Visa purposes.
Check out the changes of regulations here.
What other investment options are available in 2022 to get the Portugal Golden Visa?
There are numerous options available:
Invest through funds
Investment funds is still a viable options for those who are not interested in properties. The low entry and exit cost, the tax exemption and the diversification you can get with fund is unrivalled.
The minimum investment threshold now is 500k euros.
We have talked a lot of funds and detailed the main advantages of funds here. The investment threshold has increased but the fundamentals remain the same.
We have updated our fund options with more than a handful of new funds. Check it out here.
We have said a lot about funds lately. In this post, we will focus on property.
Invest through properties
In terms of properties, in contrary to what many people might think, there is still an ample of attractive options.
In non-restricted areas (mostly low density areas) – all properties are eligible, that is both residential and commercial properties – lowest investment threshold is 280k;
In Lisbon, Porto, and restricted coastal areas – commercial properties (shops, offices, touristic apartments, service apartments, hotel units) are still eligible -lowest investment threshold is 350k for Lisbon and Porto, and 280k for certain other coastal areas (eg. Algarve region).
You can also buy residential properties in Lisbon, Porto, coastal area via a fund However, you have to choose the property from a certain developers – that is linked to a fund – lowest investment threshold is 500k (for fund).
If we say 2021 is the year for investment fund, then 2022 maybe a year for serviced properties.
One important note is that the areas allowed for residential properties DO NOT equal to low density areas. For instance, residential properties are not longer eligible for some parts of Santarem, Algarve, Viseu, Viana do Castelo although they are considered low density area.
On the same note, not all high density areas are in the restricted areas where residential properties are no longer eligible. For example, residential properties in Madeira, Acores, some parts of Coimbra region are still eligible for Golden Visa.
The Differences of Residential and Commercial Properties
While most people are familiar with pure residential properties, the same can’t be said for commercial properties. Thus, we would like to dive deeper into the ‘Commercial’ Properties’, because this area is where opportunities are rising.
This one is what most of us are used to – apartments, houses, etc. Normally, there is no guaranteed income. You can use it for yourself, renovate it, leave it vacant or rent it out through any agent you want.
The options of buying an old property, renovate it, and then rent out or for self use and flip it at the end of the GV process doesn’t work anymore for restricted areas of Lisbon, Porto and most coastal area.
You can still do it in the non restricted areas. But do we recommend it?
Remember the reason why they are still eligible is because the demand is not high, and it is not easy to find a trustable construction company or management company for your renovation and rental management. Certain turnkey projects are ok. However, if you want to do the whole project yourself, we only recommend it if it is for self-use, or if you can be there to monitor the renovation and manage the property. Otherwise, in our opinion, the amount of time, effort and money you need to put into renovating, managing and maintaining the property, is not worthwhile.
Commercial / Serviced properties
On the other hand, there is the commercial / serviced properties. This includes a wide range of categories – hotel residence, touristic apartments, student housing, shops and offices. The main aim of these types of properties is to generate income. And developments such as hotel residence, touristic apartments, student housing, mostly has a management company/ developer behind that manages and operates them.
In fact, this aligns with the objectives of most Golden Visa clients, as they are not planning to move to Portugal right away. Before, they would need to invest in residential properties and worries about the rental, the vacancy, the management and maintenance and so on. Now, these commercial projects take care of all of these.
And most of the offerings give out guaranteed return and some even buy back. Fully managed, fully furnished and hassle-free! Buying a buy-to-let property doesn’t get better than this!
So if you want to invest in a property that generates income – this is good news.
The changes in the regulation actually help to create more commercial projects, for Golden Visa clients to choose from. And the projects are more likely to be by larger scale developers/ operators that handles hundreds of units.
One major difference between commercial and residential properties is that some commercial properties cannot be used by the owner. Each development is different in this aspect. There are projects where the owners can’t use, others that the owner can live in it as long as they want, and everything in between (eg. from 7 days usage to 12 weeks usage).
Most of our clients are not looking into living in the properties full time. Regardless of investing in properties or funds, most of our clients actually plans to buy another property when they are ready to move to Portugal. Because, honestly, the criteria of purchasing an investment for rental income, and purchases your own home are totally different (eg. the area you want to live in vs an area for student accommodation maybe totally different).
In addition, when investing in commercial properties, it is usually more about income and cash flow, just like running a business. It is an important decision point of investment, and even a better gauge than using the possibility / rate of capital appreciation, because cash flow is more predictable. To give peace of mind to investors, most projects gives out guaranteed returns for the first few years.
In conclusion, if your main objective is to:
- Get a vehicle where you can invest and get your Golden Visa in a few years, meanwhile earn some income to cover the cost of Golden Visa;
- Buy an income generating asset while avoiding the everyday hassles on maintenance, management, and rental.
There are great opportunities for you as the market is blooming with options.
What do you need to consider when choosing commercial residential properties?
Low density or not?
Please be reminded that you can still buy this type of commercial properties in Lisbon and Porto, the lowest investment amount is 350k, while for low density areas it is 280k. The choice of investment options in low population density areas should take into account demand prospects, because typically these low density areas are low demand areas.
Buy a unit or co-ownership?
While most projects out there are sold on a unit basis – that is you buy and own a certain unit (apartment, villa) of the project, there are a few projects where you are buying a fraction of the total property. That is you co-own the whole property with others, and you don’t own any units outright.
Buying individual unit is undoubtedly more autonomous of co-owning a property.
Can I resell in second hand market?
For projects that don’t have any buy back options, most certainly, you can buy and sell the units in the second hand market. For those with buy back options, sometimes the developer has restriction clauses. For example, some buy back options are obligatory, and some are optional (ie. the client can choose to keep the property). Also, some projects has restriction of selling the units/ co-ownership in the second hand market. If the asset can’t be sold in the second hand market, then your sole exit strategy rely on the buy back from the developer. And that is when you need to be more diligent in your choice of property/ developer.
Can I use the apartment?
If your intention is to use the property yourself either short or long term, you should clarify if you can use the apartment, for how long you can use it, and when you can use it (peak season/ off-peak season).
Also, many of the options gives you a few weeks of owner’s usage. You should consider this as part of the return. For lifestyle investors, this means you can enjoy free accommodation on your holiday, which usually is the biggest expense of a vacation. For those who may not need to use all of the owner’s free accommodation, you should also ask if the return would be adjusted.
With that in mind, the real return is higher than the guaranteed return.
How much return am I getting?
Many developments are giving out guaranteed return for the first few years. Be sure to understand if the return is net of expenses or not. And what are the revenue split after the initial guaranteed period.
When will it be completed?
Logically, the units will only generate return once they are completed and in operations. While some developments are ready built, others may take 2-3 years to be completed. From an income point of view, for sure it is better to get return as soon as possible. A 4% return on a €350,000 investment generates €14,000 a year. A three-year difference in completion date comes to €42,000, aka. 12% of the investment capital.
For example, when you are deciding, between a 350k that will complete in 3 years to a 400k that is already completed/ near completion. The 4% return for 3 years is €48,000. This is already the differences of price between the two properties. And if we use 4% as the yield, you will be getting €2000 more every year for the 400k property.
Furthermore, nothing beats a property where you can see the finishings and the quality. And the fact that it is finished gives you the peace of mind.
Who is giving you the buy back?
It is also important to know who is buying back the property if they are offering buy back. If it is a hotel project, usually there are two parties, one is the developer that develop and owns the building, and the other is the hotel brand the runs and operate the hotel. Usually, there is an agreement in placed where the hotel brand manages the hotel for them for a certain number of year. While the hotel brand is important for how the hotel will be run, and may affect the profitability / popularity of the hotel. The ultimate responsible party for the buy back is usually the developer.
Of course other usual investment decision aspects of buying a property still serves here. For example, the location, the transportation system, and so on.
On top of that, you should also see, if it is a hotel development, is it in a touristic area? If it is student housing, is it near university campus?
If they give owner’s usage, would you like to spend you holidays there?
It is best to know what you are getting into when investing in these types of projects.
It is equally important to work with immigration consultants on the ground, in Portugal, who know the areas, the investment environment; the bigger picture of tourism in Portugal for hotel developments/ touristic apartments; the universities and student populations/ student profiles for student housing (eg. are there a lot of international students? Because most of these student housing are geared towards international students as local student won’t have this type of budget for rents) to give you guidances.
We do site visit for every developments we promote. We look at the location, the developer, the neighbouring buildings, the quality of the finishes, the facilities, the amenities and so on. We also take clients to site visit, in the process, we also get to know the client’s reaction to the different developments, and can assess the developments not only with the factual information but also from client’s inclination in general.
Now, we are quite confident to say that we have got one of the best, carefully weighted and seen selections of commercial residential that suits all types of investors – from lifestyle investors that want to enjoy luxury holiday in their own properties; to investors that want to build their portfolio with assets in Portugal; to those that just regard the investment as a vehicle to get their Golden Visa with minimal investment and a safe return of their capital.
Finding a trusted partner is essential. For more information on which type of projects are most appropriate for you, please schedule a call with us.
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