Government scraps ban on selling houses to foreigners. Portugal cannot afford it, warns the sector.

Unlike Canada and the Balearic Islands, the Portuguese government has no plans yet to ban sales to non-residents. Canada has already banned non-resident foreigners from buying homes, and the Balearics recently announced their intention to do the same. They are on different sides of the Atlantic Ocean, but they have the same goal - to counter rising housing prices. However, real estate professionals say that Portugal cannot afford such a measure, given the strong impact it will have on the sector and, above all, on the economy. Information that the government is not considering the topic is reported by ECO.

From the beginning of this year, foreigners who are not residents of Canada are not allowed to buyreal estate in the country. This was promised by Prime Minister Justin Trudeau in his 2021 election campaign. He believes that foreigners are responsible for rising prices in the country, and there are fines of up to ten thousand euros and an obligation to sell the property for violating this law. Following the news about Canada, the authorities of the Balearic Islands have also announced their intention to enact similar legislation. Ibiza, Mallorca, Menorca and other Balearic islands want to impose the same ban, pointing to foreigners buying vacation homes and creating "ghost villages" with neighboring houses outside the summer season, The Guardian writes. Portugal does not yet have government plans for such a measure, ECO has learned. Nevertheless, the Executive is studying measures to ease access to the housing market and will even conduct a study to compare what is being done in other European countries. But if it was an option, would it be feasible and legal?

Non-residents buy 7% of homes in Portugal. "A delicate subject," says Pedro Vicente, CEO of real estate company Overseas, in an interview with ECO. "It's the foreign market that works best. However, it represents about 10-15% of the total market, but it is important because it has the highest average cost per unit," he notes.

The latest data from the National Statistics Institute, relating to the third quarter of 2022, shows that of the 42,223 houses sold, only 2,767 (6.6%) were bought by people with residence outside Portugal. Buyers residing in the EU accounted for a total of 1,486 units. Fresh data from the Banco de Portugal for the 12 months ending June 2022 shows that non-residents accounted for 11.7% of total transactions in Portugal. Buyers with residency outside the EU are leading the way, with an average transaction value of 414 thousand euros in the first half of 2022, 143% higher than the average value of transactions with buyers living in Portugal.

"Those houses for millions are not for most people," says economist João Duc, noting that the main problem in Portugal is not non-residents. "Sure, they're buying properties that have gone up significantly in value, but those million-dollar homes can't be afforded by the vast majority of people. Houses with prices in the hundreds of thousands of euros are for typical Portuguese families," he says.

Therefore, Vera Govea Barros says that if the government applies such a measure in Portugal, the Portuguese "will not feel anything significant in terms of prices". "What would happen is these big deals would disappear. But that doesn't mean the Portuguese will be able to buy houses," she adds. Pedro Vicente of Overseas confirms that such a measure "will not solve the problem of access to housing" in the country, emphasizing that "this is not a market that affects the Portuguese". Economist João Duc also adds that national real estate "remains under pressure not only because of non-residents." "They are not the bad guys. Our residents have also hurt the market because of very low interest rates, which have been fuel for rising prices," he says.

The obstacle to such a measure also lies in the legal aspects. "Given the principle of free movement of people and goods in the EU, I don't see how Portugal can be a barrier for citizens of an EU member state to be able to buy something in Portugal," says Tiago Mendonça de Castro of law firm Abreu Advogados. He also notes that the fact that Portugal is a member of the Society of Portuguese Speaking Countries (CPLP) makes it difficult to introduce such a measure without undermining the SRSG. That is, restricting purchases in Portugal to non-EU citizens would be possible. "For non-EU citizens, Americans, Canadians or Brazilians who want to invest in Portugal by owning real estate, there might be a hurdle," says Tiago Mendonça de Castro. "These are essentially protectionist measures," the lawyer says, noting that at issue here is a private property right that "generally does not involve government interference." "I don't see how something like this can be created without violating the right to private property," he emphasizes.