Are golden visas a golden ticket for residential real estate?
The offer of residency remains far from a one-size-fits-all answer to encourage direct real estate investment.
More countries may be wooing foreign property buyers with the offer of residency, but it remains far from a one-size-fits-all answer to encourage direct real estate investment.
Portugal is estimated to have raised nearly €4.25 billion in foreign direct investment since launching its golden visa program in 2013. Last year Italy launched its own “golden visa” scheme, although the program is aimed just as much at encouraging entrepreneurs to invest and start businesses — and not just at retiring expat homeowners — of which the country is not short of.
While the European Commission has recently called for tighter controls on golden visas, the United Arab Emirates and Egypt have started offering residency to affluent homebuyers — although with a rather different set of conditions attached.
The arrival of expat capital is a “surefire way to boost the residential market”, says Habiba Mostafa, JLL Egypt research analyst.
“The offer of a visa brings benefits to the economy in a short space of time,” Mostafa says.
Residential real estate has been the prime driver of the Dubai economy in the past 20 years, says MENA head of research at JLL, Craig Plumb. “But in recent years, oversupply has hindered the market.
“Using the offer of residency won’t cure that on its own — but it is a sensible way to create new sources of demand.”
The UAE’s efforts mark a move away from its “no job = no visa” policy, although Plumb says residency rules are still somewhat restrictive. The UAE has traditionally provided visas for up to 2 years for a minimum investment of one million dirhams (US$273,000). Other new categories of investor and retiree visa have been introduced during 2018 - but these both currently require even higher levels of investment.
“Not all expat buyers will be able to take advantage of this,” he explains. “Its impact is limited for the time being - but that may change over time.”
Boosting local real estate markets
Egypt’s steps towards offering visas to foreigners in return for residential investment come as part of efforts to repair damage to its economy caused by the severe austerity conditions that came with a US$12 billion loan package from the International Monetary Fund in 2016.
Egypt’s move marks an end to its 10 consecutive years of residency naturalization rule. Three and five-year residency permits will be granted for property purchases respectively worth US$200,000 and US$400,000, while a one-year visa in return for a minimum investment of US$100,000 offers a lower entry point than the thresholds set in the UAE.
Egypt’s relaxation of rules could bring the country’s coastal areas – already popular with loyal German and Italian holidaymakers – into play, says Mostafa.
“We are a tourism economy and there’s definitely demand for homes by the sea,” she says. “The transition from holidaying to living could be swift - if the right incentives are in place.”
For now, Egypt does not offer, for example, assisted living for retirees and the country currently has few retirement resorts.
“That could change if investment rules are amended – expat retirees could be encouraged to make the move here.”
The Egyptian government, is however, aware of its country’s appeal and will tread carefully, Mostafa says.
“Certain areas of natural beauty need protection,” she explains. “So being able to buy land in protected desert areas for example, is off limits.”
How local buyers react, says Mostafa, could be influenced by traditional, cultural habits.
“It is pretty normal for parents to buy a home or land for their children around the time of marriage,” she explains. “So it’s not as though Egypt lacks interest in its residential market.”
A long standing European option
Non-EU residents continue to seek ways to access Europe.
In the case of Portugal, for example, South African investors have been drawn in large numbers in recent years. In fact, 45 nationalities invested in Portugal last year, according to JLL.
But it has not been without controversy. Aware that its residential market is on the rise, political debate there has risen in recent months, with the possibility of a suspension of the offer, similar to the temporarily pause the country put in place in 2015, now on the horizon. As Maria Empis, consultancy and research director at JLL Portugal explains, the visa scheme has had a positive effect – but the residential market is now in a better position than it was at the scheme’s inception.
“There’s a feeling that the market no longer needs to rely on the scheme,” she says. “But it has certainly raised the global profile of Portuguese residential property.”
Success depends very much on underlying market conditions. In the longer-term, many other countries are waiting to see how the experience of Portugal, Egypt, and the UAE plays out as they seek to introduce their own golden visa initiatives.