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Golden Visa Effect: How Passport Sales Impacted European Property Markets

The 2008 crisis hit most European real estate markets. One of the measures that a number of countries resorted to in an attempt to support the flow of investment was the “golden visa” program, under which governments issued passports and a residence permit in exchange for the purchase of real estate.

Tranio experts analyzed the dynamics of the development of real estate markets before and after the launch of programs in five European countries: Latvia, Portugal, Spain, Cyprus and Greece.

The Latvian economy, with the support of the IMF, recovered fairly quickly after the crisis: if in 2009 Latvia’s GDP fell by almost 15%, then since 2011 this figure has steadily increased.

Latvia launched the golden visa program in April 2010. The low investment threshold (140 thousand euros for real estate in Riga and 70 thousand in the regions) ensured its instant popularity: according to the information of the Latvian Citizenship and Migration Board, in 2011 almost 1.3 thousand buyers received “golden visas” of real estate and their families, in 2012 – 2.2 thousand, in 2013 – 3.1 thousand, and in 2014 – almost 5 thousand. But in September 2014 the Latvian authorities raised the investment threshold to 250 thousand euros, and then The demand for “golden visas” has fallen sharply: in 2016, only 489 people received a Latvian residence permit. About 70% of investors who received a Latvian residence permit are citizens from Russia.

Housing prices in Latvia collapsed immediately after the onset of the crisis: according to Eurostat, from the beginning of 2008 to 2010, the cost per square meter has fallen by half. With the launch of the program, right up to the change in its conditions in 2014, real estate prices have skyrocketed: by Q3 2014, they grew by 40%, but fell by 11% immediately after raising the investment threshold in September. The situation gradually stabilized, and by the second quarter of 2017, a square meter in Latvia is 14% higher than during the recovery period in 2014.

House price index and number of transactions in Latvia
According to the European Mortgage Federation, in the same way, the program affected the number of real estate transactions: if from 2010 the number of sales grew steadily, then in 2014 the growth stopped, and in 2015 their number decreased by 3%. Official data for 2016 and 2017 are not yet available.

Thus, the “golden visa” program has had a significant impact on the real estate market in Latvia, in a record year in terms of the number of residence permits issued in 2014, having provided more than 4% of sales. But after increasing the investment threshold, the number of applicants rapidly decreased (in 2016, their number was 10 times less than in 2014), weakening the program’s value for the local market.

More recently, the economic situation of Portugal left much to be desired: a reduction in GDP of 4% in 2012 and a  rate of 16.2% in 2013. From 2014, the situation began to improve, and in the second quarter of 2017, growth in Portuguese GDP was 3% compared to in the same period in 2016 – so quickly the economy of Portugal has not grown since 2000.

In October 2012, the Portuguese government announced the launch of a program for issuing residence permits for investments, including the purchase of real estate worth from 500 thousand euros – the most popular option among applicants (95% of issued residence permits). In the third year of the program, the number of investors began to decline, then Portugal lowered the investment threshold for certain categories of objects: up to 350 thousand euros for buildings that were built more than 30 years ago or are located in urban regeneration areas, and up to 400 thousand if the property is located in sparsely populated area. The measure spurred demand: the number of applicants in 2016 has doubled compared with 2015. In total, for the whole term of the program until the end of July 2017, 5 243 residence permits were issued, 4 945 of which were for real estate investments.

Property in Portugal became cheaper from 2010 to mid-2013. Six months after the launch of the “golden visa” program, the cost per square meter began to grow: from the 2nd quarter of 2013 to the 2nd quarter of 2017, real estate prices increased by almost 20%, and lowering the investment threshold only strengthened the growth: up to innovation, housing rose by an average of 3 quarterly % year on year, after – an average of 6%.

House Price Index and Number of Transactions in Portugal
According to the European Central Bank, the number of residential real estate transactions in Portugal from 2012 to 2015 increased by more than one and a half times: from 76 thousand to 127 thousand, and in the first half of 2017 almost as many real estate objects were sold as in the whole of 2012.

In general, the growth of the property market in Portugal is due to a number of factors: the recovery of the local economy, the strengthening of the status of Lisbon as one of the European centers and the rapid growth in the number of tourists. At the same time, the “golden visa” program, which provides only 1% of the total number of real estate transactions in the country, is fueling the interest of foreign investors in the local market.

Having recovered from the crisis, the Spanish economy is regaining lost positions: if in 2009 the GDP growth rate fell to a record low of −3.57%.

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