Golden Visas inflated high-end house prices say researchers
A study has identified the effect Portugal’s Golden Visa has had on house prices for properties worth €500,000, inflating them by up to 60%.
The study from EUTAX says that while Residency by Investment programs have become integral to contemporary migration policies, providing a distinct pathway for individuals to acquire a new legal status through financial investments, they have also had an impact on real estate housing markets.
The researchers used transactions records from 2007 to 2019, analysing the introduction of the Golden Visa Program in Portugal in 2012.
They first presented descriptive bunching evidence around the €500,000 threshold, revealing potential price distortions.
Merging the transaction data to property tax records, the researchers then conducted a difference-in-differences analysis assessing the golden visa impact on the discrepancy between transaction prices and fiscal values.
The analysis uncovered a “Golden Visa Premium,” where transaction prices exceeded fiscal values by an average of around €38,000 at the investment threshold, indicating a more than 10% price increase in high-end housing prices. Finally, survey data from the Portuguese population indicated widespread support for ending the programme, particularly among the elderly, educated residents in Lisbon.
The analysis was conduced by researchers João Pereira dos Santos (Queen Mary University of London/ISEG – University of Lisbon, and IZA), and Kristina Strohmaier (University Duisburg-Essen), and for the first time researched the economic effects of an EU’s golden visa programme on the real estate market.
Instituted in October 2012, the Portuguese golden visa program offered residency permits and access to the Schengen area in exchange for investment, primarily in real estate, with a minimum value of €500,000. As one of Europe’s most popular residency-by-investment schemes, it had drawn over 12,000 applicants and garnered over €7Bn in investment, raising questions about its impact on property prices and housing affordability for locals.
“In our study, we conducted a detailed analysis of the economic impact of Portugal’s golden visa programme on the real estate market. Utilising real estate transaction data, we were able to identify a significant increase in the number of property transactions precisely sold at the €500,000 threshold. The excess mass at the threshold increased by about 60% suggesting that sellers strategically priced properties in the course of the golden visa programme leading to a distortion in the real estate market”, they said.
In a second step, by merging transaction data with property tax records, the researchers employed a DiD approach to assess whether the benefits associated with a golden visa capitalised into housing prices.
“Our results revealed a notable “Golden Visa Premium,” where the transaction prices exceeded the fiscal values of properties by an average of €50,000. This premium indicates the extent to which the prospect of residency benefits through the Golden Visa programme is capitalised into property prices. In a last step, we used survey data by Azevedo and Pereira dos Santos (2023) to get an idea about the programme’s acceptance among the Portuguese population. The responses highlighted a significant inclination towards terminating the golden visa program. This sentiment was particularly strong among older, educated residents of Lisbon, driven by concerns over housing affordability and the broader societal impacts of the programme”.
And concluded that the findings offered important insights into the complex interplay between investment-driven residency programmes and their broader economic and social impacts.
“Our study demonstrated that while the golden visa scheme has been successful in attracting foreign investment, it has also led to unintended consequences in the real estate market, including price distortions and public disapproval, particularly in urban areas like Lisbon.
“The significant increase in property prices suggests the need for regulatory measures. Policymakers should consider introducing controls to mitigate the inflationary impact on property prices, ensuring housing remains affordable for local residents. This could involve setting caps on eligible properties for golden visa investments or diversifying the types of investments that qualify for the programme”, said the two researchers.
Greece, which also has a Golden Visa programme, announced two weeks ago that it would be increasing the minimum amount a third national needs to invest and secure a residence permit, in an effort to tackle the country’s housing crisis.
In popular regions, such as Attica, Thessaloniki, Mykonos, Santorini and the islands with a population of over 3,100 inhabitants, the threshold will now be €800,000 while in other areas the threshold is €400,000 and above.
Moreover, investors must now purchase a property of at least 120m2. For buildings that have industrial use and are converted into houses, the required amount is €250,000 euros while the required amount for investment in a historic building stands at €250,000 euros.
The Portuguese socialist government under António Costa announced in February, 2023 during a press conference that unveiled a set of controversial measures to try and solve Portugal’s pressing housing problem in cities like Lisbon and Porto – ‘More Housing’ – that it would completely end the Non-Habitual Residents programme that offered generous tax breaks to EU foreigners, and scrap the Golden Visa programme, except for investments in government approved funds, to help startups, for example. The Portuguese prime minister said the Golden Visa as a foreign direct investment instrument had served its purpose in kick-starting Portugal’s flagging domestic economy after the financial crisis and recession that followed.
