New rule for Portugal: investing in funds to obtain the right of residence

Foreigners who want to obtain a Portuguese golden visa can still invest their money in investment funds.

Buying real estate in Portugal is no longer a path to a "golden visa" granting permanent residency, but foreigners who want it can still put their money into investment funds that are now expecting a wave of inflows.

The Portuguese government tightened the rules after first announcing in February 2023 that it would abolish the golden visa scheme, which has been blamed for exacerbating the housing crisis. It had already sought to redirect real estate investment from major cities to depopulated areas.

The scheme, which offers rich foreign nationals who invest in Portugal the right to reside in the country, has attracted 7.3 billion euros ($8 billion) since its launch in 2012. Most participants are from China, Brazil and the United States. About 90% of those funds have been invested in real estate, prompting complaints about rising house prices in one of Western Europe's poorest countries.

The European Commission, meanwhile, has called for an end to such programs, given security concerns.

Putting money into investment funds has been possible under the Portuguese scheme since 2015, but it is expected that this will now be its main channel. Other avenues include donations for cultural or research projects.

"Real estate has always been a distraction from other options," says attorney Vanessa Lima of Prime Legal, which assists foreigners with visa applications. "The main type of investment will be funds - there's no doubt about that."

To be eligible for the golden visa, applicants must transfer 500,000 euros into one or more qualified funds. Portuguese stock market regulator CMVM, which certifies funds, said it could not provide a list of those eligible for gold visa investments.

Some of those hoping to benefit are the Pela Terra sustainable agriculture funds, which are already helping to rehabilitate nearly 1,000 hectares of farmland in the Alentejo region.

"The new regulations are the wind in our sails," says Pela Terra's Alex Laurie-White. He describes the changes as a "correction" to regulations that have created problems such as rising housing prices, adding, "The golden visa program needs to have the community at the heart of its focus."

Jim Davidson, a Pela Terra investor from the US, says real estate was still an option when he started the golden visa process, but he was aware of the growing negative sentiment about the program. He says Pela Terra is more in line with his values and ethics.

Another fund, Sharing Education, invests in international schools in Portugal.

Although there is no official data yet, three lawyers specializing in golden visas told Reuters that they expect funds to account for 80-90% of all such investments in the near future.

However, with the closing of opportunities in real estate, some say that less money will flow into Portugal as a whole. "People are doing this not out of a desire to invest, but out of a necessity to obtain a golden visa," says Francisco Barata Salgueiro, a senior partner responsible for the foreign investment department at EDGE International Lawyers.

Contributing at least 250,000 euros to cultural projects or 500,000 euros for scientific research - or creating 10 jobs - can also help in obtaining a golden visa. Applicants must agree to a criminal record check and demonstrate that they have no outstanding debts.

Lima from Prime Legal believes that non-existent funds will be created now that real estate is no longer an option, and some existing funds will change their direction by moving away from real estate investments, making donations for cultural projects more popular.

But Nuri Katz from the consulting firm Apex Capital Partners says that excluding real estate investments will make Portugal less attractive to investors, who will turn to the golden visa programs of other countries. Neighboring Spain is one of those that still allow investments in real estate.

The fact that qualified funds need to invest only 60% of their assets in Portugal will further reduce the attractiveness of this scheme for Portugal, says Katz.

Lawyers and consulting firms have long complained that the golden visa process is slow and bureaucratic, and some need more clarity regarding the new rules that prohibit both direct and indirect investments in real estate. "If a fund wants to invest in a factory... is that considered indirect investment in real estate or not?" asks Salgueiro from EDGE. "We don't think so, but these uncertainties have arisen."