Europe’s hottest property market is getting too hot for some

Ana Guerreiro points across the street at a handful of housing projects in Lisbon’s up-and-coming riverside neighborhood of Marvila. It’s where she moved in with her mother last year after soaring rents meant she could no longer afford to live alone.
“Prices have gone through the roof here,” said Guerreiro, 33, stepping outside the cafe where she waitresses for a break.
Portugal is western Europe’s most dynamic property market thanks to tax incentives for foreign buyers and a so-called golden visa program, which offers residence permits in return for a minimum 500,000-euro ($550,000) investment. The flip side for people like Guerreiro is that they have become collateral damage with no prospect of prices cooling any time soon.
Foreign investors have pumped 4.3 billion euros into Portuguese real estate through the residency program since it began in 2012. Prime Minister Antonio Costa, who is widely expected to win a second term in an election next month, has signaled the country needs the incentives to continue to bring in money. Foreign Minister Augusto Santos Silva even called the programs a “sovereign right.”
Lisbon has become a magnet for tourists in Europe as many investors renovate properties and turn them into short-term rentals through sites like Airbnb. The short-term rentals have been blamed for increasing prices because they target visitors who can afford to pay more than locals.
According to the latest figures, Portuguese property prices increased 9.2% in the first quarter of the year, the biggest gain in the euro region and the steepest rise in the European Union after Hungary and the Czech Republic, according to data compiled by Eurostat.
“They just can’t afford to say no,” said Tiago Caiado Guerreiro, a lawyer in Lisbon who specializes in tax legislation. “These incentives have turned cities like Lisbon into a magnet for foreign investors who helped put the city on the map as a top tourist destination.”
Indeed, a short distance from where Ana Guerreiro works, a line of new condo developments is emerging behind colorful murals and graffiti-covered walls, luxury homes marketed mainly to a new generation of foreign residents.
Variations on Portugal’s incentives have been adopted across Europe and in countries around the world — from the U.S. and Canada to Spain and Greece. They tend to last until a critical mass of vocal opponents conclude the costs — soaring housing prices, absentee homeowners and allegations of corruption — outweigh the benefits, and politicians drop them.
Portugal’s particular circumstances may forestall that outcome for longer than in other places as there are still plenty of properties in need of renovation, and prices remain relatively reasonable compared with other parts of Europe.
Not long ago, as Europe recovered from the global financial crisis, Portugal lagged behind its neighbors in attracting investment — and it showed. Buildings in historic Lisbon were crumbling, their tile work and masonry faded and cracked.
All that began to change after the government scrapped rent controls in 2012 and introduced the golden visa and tax breaks to attract wealthy foreign residents and property investors. At the time, about 12,000 buildings were in poor condition or in ruins, about 20% of the total, according to city council estimates.
Now, Lisbon’s cobblestone streets and hilltop palaces are being restored, and hundreds of buildings converted into new hotels, short-term rental apartments and luxury retail stores. Investment in real estate and the tourism industry has broken records, boosting the Portuguese economy, which expanded for a fifth consecutive year in 2018.
“Lisbon has never been better in terms of the restoration of its buildings,” said Francisco Bethencourt, a history professor at King’s College in London. “The number of decrepit buildings has been reduced and some of the misery that existed in some neighborhoods is no longer visible. However, this change has had huge social costs as locals with fewer financial resources are being pushed to the periphery.”
Ana Pinto, the president of the Association of Residents of the County of Marvila, can see some benefits of more money coming into her town, which now draws comparisons to hipster havens in New York’s Brooklyn.
But she complains that some of the more than 600 members of her association are moving elsewhere after home prices rose 88% in the first quarter from a year earlier, according to Portugal’s National Statistics Institute in Lisbon.
“Real estate prices have simply become unbearable for us,” said Pinto. “What can we do?”
Canada ended an immigrant investor plan in 2014 after concluding that it provided “limited economic benefit.” Compared with other economic immigrants, investors paid less tax, were less likely to stay in Canada, and often lacked the skills, including proficiency in English or French, to integrate, the government found. The federal program was admitting roughly 2,000 investors a year when it ended.
“What the investor program became was a kind of de facto retirement program,” said Dan Hiebert, an expert on international migration at the University of British Columbia in Vancouver. “Instead of propelling the investment side of the Canadian economy, it propelled the consumption side of the Canadian economy,” including home purchases, expensive cars and so on, he said.
In Europe, about 20 countries operate investor residence programs, which allow the holder to travel freely within the continent’s Schengen Area during a limited period of time, according to the European Commission. In January, the commission warned that the programs expose the bloc to money laundering and security risks.
It also can change the way people live in cities. Last month, an online ad promoting the rental of container homes in Marvila made headlines in the local press, which linked the 600-euro-a-month converted shipping containers to the lack of affordable housing in Lisbon. A few days later, the city council ordered the removal of the containers, daily newspaper Publico reported on its website.
About six miles away, in the town of Amadora, City Council President Carla Tavares said Lisbon’s real estate boom has helped turn a suburb that was once seen as a hot spot for crime into a vibrant hub for foreign residents and companies like Siemens AG. Real estate prices in Amadora increased 23% in the first quarter from the same period a year earlier.
“It’s very positive to see so much rehabilitation in the city,” Tavares said in a phone interview on Aug. 14. “We must let the market function.” Henrique Almeida, Bloomberg