Successful Golden Visa program tests limits of Europe's south

In Portugal, it's sending prices flying higher. In Greece, it's distorting the market. And in Cyprus, it's drawing shady investors.

The European Union's Golden Visa program is producing some strong results among southern member states, but also testing real estate markets, government regulations and the limits of legality.

Since being first introduced some seven years ago, the program has brought tens of thousands of wealthy Chinese, Russian and Brazilian investors and their families to European shores. It offers non-EU nationals a residency permit, or even citizenship, in exchange for investments, normally in property. The price tag starts at 250,000 euros.

The program is spurring demand for real estate assets, drawing significant amounts of foreign capital, but not in a way that authorities had hoped for.

In Portugal, the government took the unusual step last week of controlling demand from foreign homebuyers. Investors can only apply for the visa if they stay away from certain areas as real estate prices have risen sharply in the country. Portugal lawmakers pushed through parliament a law stating that non-EU nationals will have to invest in property inland to qualify for the visa, in a bid to spread demand to low-density regions.

The move comes into effect next year and has unsettled some foreign home buyers with an eye on the country, but Portuguese authorities are standing firm on the decision.

The law is aimed at cooling the market in Portugal which is expected to be Europe's top performer this year, according to ING. Property prices in Lisbon are seen growing by 6 percent this year, though prices are on a downward trend, after jumping more than 10 percent and 8 percent in 2018 and 2019, respectively.

One of the EU countries that have been more aggressive on issuing Golden Visas has been Cyprus. The island state has gone one step further than most other European countries, offering its passport to investors, rather than just a residency permit. This, of course, comes with a higher price of 2 million euros but instantly gives investors visa-free travel throughout the 27 nation bloc.

On Wednesday, a European money-laundering watchdog called MONEYVAL cautioned that the passports program run by Cyprus was vulnerable to money laundering. In a report, MONEYVAL said that although Cyprus had broadly taken measures to counter money laundering risks, vulnerabilities in the investment program had risen.

"These risks have not been properly mitigated,” it said.

Cypriot authorities have responded to such criticism in the past by saying that they would review processes used to grant citizenship though no substantive changes are expected. The program is too important to the local economy.

Meanwhile, in Athens demand for residency permits has played a key role in lifting the real estate market from a severe slump brought on by the country's severe economic problems. Buying from mainly Chinese and Russian investors remains strong, focusing on central and beachside Athens areas and the country's popular islands.

The latest government data shows that by the end of last year, 6,304 residence permits had been issued to foreign investors. Greece’s residency-for-investment program has drawn some 2 billion euros to the property market since the scheme's launch in 2014.

This demand helped send prices 9.1 percent higher in the third quarter of last year, at the fastest pace in some ten years. Real estate officials have welcomed the improved conditions but price gains are fast outpacing slow improvements in the broader economy.

In Greece, job growth remains weak, disposable incomes low and taxes extraordinarily high after years of austerity imposed on the country to prevent it from going bankrupt. Foreign home buyers are snapping up property, absorbing supply levels in a move that often leaves locals out in the cold.


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