Aga Khan, the leader of the Ismaili branch of Shiite Islam, moved the Aga Khan Foundation’s branch from Aiglemont, France to Lisbon. This location shift has attracted other Ismaili/Khoja people from all around the world. They started to raise interest in Portugal.As a result, Lisbon has become the place where the Ismaili community starts to visit often. So, this enabled Lisbon to be the place where they have built a natural bond. Some even argue that it is because of this movement that the property prices in Lisbon have increased.
Along with this community, people from the Middle East also show great interest in Portugal. Every year, the Portuguese Immigration and Borders Service (SEF) releases Golden Visa statistics. It indicates that between the years 2012 and 2020, a total of 441 people from Turkey, 60 from Lebanon, 35 from Jordan, 13 from Iraq, and 25 from India obtained their residence permits in Portugal. So, how did these people obtain their residency? More than 90% of the investors buy a real estate property to gain a residency permit in Portugal. Also, Deloitte Property Index 2020 in some way supports this. It indicates that “foreigners still represent more than 50% of the demand for the country’s residential market.”
Property Market in Portugal
The Portugal Golden Visa Program is available for non-EU citizens. It has such great benefits that the number of investors increases each year. Out of a total of 9200 residence permits, 8654 of them were realized by the purchase of a property. Investors consider property purchase as a future investment. Also, they are already attracted to the tax breaks and some tax exemptions that Portugal offers. Portugal imposes no wealth tax, inheritance tax, and gift tax on expat homeowners. This is a huge incentive, especially for Turkish and Arab investors. So, living in Portugal is an option for them as well.
There is also another aspect of the Arab world’s interest in Portugal. As mentioned above, in 2015, the leader of the Ismaili branch of Shiite Islam, Aga Khan moved the Ismaili Imamate’s Secretariat from Aiglemont, France to Lisbon. To introduce the community briefly; The Aga Khan Foundation (AKF) was established in 1967. Since then, it aims to bring together human, financial and technical resources for the challenges which the poorest and most marginalized communities face in the world. It specifically deals with investing in human potential, expanding opportunity, and improving the overall quality of life.
Considering the numbers of The Ismailis community, the movement has had great effects on Portugal’s real estate market. It appears that Portugal is the new “home” for the Imamate of Aga Khan. The Ismailis live in more than 25 different countries. They live mainly in the Middle East, Africa, Central and South Asia, Europe, North America, and Australia. They t number approximately 20 million around the world.
The movement of the Secretariat also means cooperation between Portugal and the Ismaili Imamat for improving people’s quality of life both within Portugal and anywhere around the world. The president’s and Aga Khan’s speech support this as well. When Aga Khan visited Portugal in 2016, Portugal’s President de Sousa stated that “What really brings us together is a joint commitment to defend and apply the principles and values that honor the ethical importance of human life, pluralism of societies and respect for the dignity of human beings.” As a response to this, Aga Khan also stated that “The values of your civil society are the same values that we defend. We have therefore great commonality in the work we do, not only here in Europe, but in Africa, Asia, and elsewhere.”
Eurico Brilhante Dias, who is Portugal’s secretary of state for internationalization also agrees on the interest from the Middle East countries. “We have people living in the UAE but also in Pakistan and India, and other countries in this region interested. China and the Middle East in particular.”
So, what does a real estate purchase entail? To get a residency permit in Portugal, you need to buy a property of an amount of at least €500,000. Alternatively, you can buy a property of at least €350,000, that is older than 30 years old, with the obligation to renovate. When you complete the purchase process and other necessary documentation, you can apply for a Golden Visa in Portugal. At first, you will gain temporary residency. You need to renew it every two years for a duration of five years. Also, you need to stay in the country at least seven days each year. At the end of five years, you can apply for permanent residency and citizenship in Portugal.
Benefits of Golden Visa for non-EU citizens
There are other investment options for Portugal Golden Visa along with real estate purchases. You can make a capital transfer of at least €1,000,000, or at least €350,000 for the acquisition of units of investment funds or venture capital funds. You can also establish an enterprise that creates at least ten employment positions. This is very critical especially for people from the MENA region. The reason is that some countries do not accept foreign investments from certain nations. So, third-country nationals cannot benefit from the business options in some developed countries. However, the Golden Visa makes the process much easier. The reason is that if you obtain residency in Portugal, you will already have access to business in Portugal and many other similar countries.
Furthermore, when you obtain citizenship of the country, you can be entitled as an EU citizen as well. In this way, you can have easier access to the European region to conduct your business.
Along with business opportunities, the residence permit also allows you to travel visa-free to Schengen countries. What is more, you can include your family as well. Remember that this happens only soon after you gain residency. If you obtain citizenship, you will get a second passport and dual citizenship. Then, you can visit a total of 186 countries in the world without any visa requirements.
Demand for properties and business in Lisbon
PwC’s study of “Emerging Trends in Real Estate Europe 2019” indicates that Lisbon is the most attractive city to invest in. The city also attracts wealthy investors from Turkey, India, Pakistan, Russia, the United Arab Emirates, and more others. Investors from these nations mainly want to escape from the political chaos in their own countries. Also, those from India and Pakistan are tired of the anti-business tax laws. They also want to guarantee their future with second residency and citizenship in another country.
The mortgage rates also play a huge role in the demand for real estate property in Portugal. In Portugal, the recent mortgage rate was only 1.06%. This also means that the country has the best affordability rate for buying a house.
Another attraction Lisbon has is the start-up ecosystem and the development of tech companies. There has been a variety of projects in the digital sector. Furthermore, several big companies are planning to open their Portuguese branch in Lisbon. One of the companies is Qualitest (a large services provider of QA and testing solutions). The other company Oracle established a new internet data center in Lisbon. Amazon Web Services opened a new CloudFront location in 2019. Huawei opened a network optimization center in Lisbon. Xing established an R&D center in Matosinhos. So, the business sector is another incentive for investors from the Middle East who want to expand their business.
It is also worth noting that Foreign Direct Investment (FDI) projects in the digital sector almost tripled in 2019. Also, the sector still maintains its leadership position. Furthermore, the number of jobs created increased from 1.610 to 3.766.
In short, Lisbon has everything you need. A center of finance and business, tourism, real estate market, and everything in between.
As opposed to heavy tax burdens in the Middle East such as India and Pakistan, Portugal offers many tax breaks for expats. For expat homeowners, there is no taxation on wealth tax, inheritance tax, or gift tax.
Portugal has also signed a Double Taxation Agreement (DTA) with more than 60 countries. Algeria, United Arab Emirates, India, Israel, Kuwait, Morocco, Pakistan, Qatar, Tunisia and Turkey are among them. You can benefit from the agreement at both individual and corporate level. Basically, if you pay taxes for your foreign income in your country of origin, then you won’t pay the same tax in Portugal. However, you need to prove to the Portuguese authorities that you are already paying taxes in the other country.
Another important tax regime is the Non-Habitual Residency (NHR) program. This is a bit different from the DTA. Firstly, you benefit from NHR for a duration of ten years. Through NHR, you can be exempt from taxation on most of your foreign income. Also, you will only pay a 10% tax rate for your foreign pension income. Along with this, you will be subject to a flat rate of 20% tax rate on your Portuguese income. This is a huge relief for foreigners. The reason is that normally, residents pay a rate of up to 48%. There are some requirements to apply for NHR. One of them is not to have been a tax resident in Portugal within the preceding five years. The other is to have the right to residency in Portugal. Normally, citizens of EU/EEA/Switzerland can apply for residency, and benefit from NHR. However, other citizens cannot directly apply for residency in Portugal. This is why Portugal Golden Visa is a suitable and quick way to obtain residency.
Future of the Real Estate Market in Portugal
PwC released its 2019 study regarding the real estate market in Europe. It ranked the real estate markets in major European cities in accordance with their overall investment and development prospects. “With some of Europe’s major markets judged to be peaking, attention is shifting to smaller, more dynamic cities; the “rising stars,” it says. “This year’s choice for overall prospects is Lisbon, rising 10 places to number one. Interviewees cite the city’s “quality of life” and “positive” leadership. Plus, it’s seen as a late-cycle play. Portugal’s economy is growing healthily and its capital is now an international destination for companies, investors, and tourists.” So, Portugal seems to maintain its rank in the future as well.
Economists from Standard & Poor’s (S&P) Global Ratings predict a 2.5% drop in house prices in Portugal. However, it also suggests that it is highly possible that a rapid recovery will occur until 2022. It is thanks to the Portuguese government’s huge support. Having said that, investors may consider buying real estate now, in this situation.
National Statistical Institute of Portugal (INE) indicated the rate of foreign investors buying property. “In 2019, the average value of real estate sold to non-residents was 176,429 euros (+3.1% vis-à-vis 2018). This value is 57% higher than the average value of total transactions, a relative difference similar to the one recorded in 2018,” suggests INE.
In short, as these institutions predict, Portugal will continue to attract foreign buyers and investors for its real estate market at least in the near future. As discussed above, there are several reasons for the demand from foreigners. One of them is related to the Ismaili community, who raised interest in Lisbon after the Imamate was moved there. Another factor is low mortgage rates. Investors also care about the quality of life and the economic welfare the country holds.