Portugal has been a fabulously profitable market for a few prescient real estate investors from the UAE since 2015, with close friends telling me that prices of their apartments in upscale districts of Lisbon and Porto are up an incredible 50% during a period when home prices in Dubai have fallen by 35%. The reasons for Portugal’s emergence as the most attractive property market in Western Europe are not hard to fathom. With its exquisite beauty, ancient maritime culture and ease of access via budget airlines, Portugal is a natural retirement/second home magnet for British, Benelux, German, Swiss and Nordic investors.
Portugal’s historic colonial links means billions of Euros in property sales to the financial elite of Angola, Brazil, Mozambique, Goa and even Macau. Portugal’s golden visa program has been a spectacular success from Cape Town to Dubai, Karachi to Montreal among my own social circle. The program attracted €5 billion from more than 8,000 non-EU investors into the local property market. Narco-trafficante/political violence in Venezuela and Mexico, geopolitical havoc in the Arab world, punitive anti-business tax laws in India and Pakistan and high risks to capital in Africa make Portugal a natural hedge for thousands of wealthy, non-EU business families. Portugal’s golden visa program requires a €500,000 property investment in one of the world’s most beautiful, attractive, hospitable and stable countries in exchange for permanent residency and a path to eventual citizenship in an EU member state.
Prime Minister Antonio Costa’s brilliant insight that foreign investors must be courted and incentivized to bring money in a world where more than 80 countries compete fiercely for a finite number of cosmopolitan business families guaranteed the success of Portugal’s golden visa program since it was unveiled in 2012. In the twenty first century, where capital is global, networked, geopolitical risk averse, obsessed with value and low fees and mobile at the speed of light, a complacent “build it and they will come” attitude, coupled with dodgy developers, exorbitant service fees, a homeowner unfriendly legal system and high cost, exploitative home mortgage products is a recipe for disaster, as the cities of the Gulf have learnt the hard way in the past decade.
With Portugal’s lavish tax incentives, its retirement appeal to older non-EU citizens, its easy Airbnb/short term leasing opportunities due to the sheer inflow of tourists and dirt-cheap prices after the trauma of Banco Espírito Santo’s collapse make Lisbon’s golden visa program a global hit ever since its launch. Portuguese home prices have outperformed even Spain, my favourite property market in the EU, in the last four years.
There is another reason for the spectacular rise in Portugal’s housing prices since 2017. Portugal has granted a Vatican like status to Prince Karim Aga Khan’s 20 million Nizari Ismaili community, which includes some of the world’s wealthiest, most educated, liberal, cosmopolitan and socially conscious Muslim business families in highly unstable countries that range from Pakistan to Syria, Mozambique to East Africa, Madagascar to the former Soviet satrapies in Central Asia. The Aga Khan has moved the Imamate’s Secretariat from Aiglemont, France to Lisbon, an event that alone has stimulated great buying interest from dozens of my Ismaili/Khoja friends in Pakistan, East Africa, Azania and even Canada, a nation with only two seasons – winter and July! I expect non-EU investment into Portuguese real estate will only accelerate in 2020, even though prices rose 12 – 13% in 2019 alone.
Golden visa programs and a credible path to citizenship are now common in even the world’s most coveted destinations, from the US and Canada to Britain, Switzerland and the lovely countries of the Club Med. A foreign investor with at least a million Euro budget to buy residential property is spoilt for choice in the EU. Yet the golden visa program has imposed political costs on Portugal’s socialist government. Locals cannot compete with affluent expats as house prices soar. It is common to see penthouses and villas in both Lisbon and Porto empty, as their absentee owners live and work somewhere far away in the Third World – though my aunty and uncle from Karachi are busy playing golf in Sintra and Porto while a close friend owns a Lisbon hotel with an unbeatable room rate for me – zero, as long as the NYSE ideas make money!
Trade unions want foreigners to invest in job creating ventures, not just passive residential real estate. I would thus focus on tourism linked properties, such as boutique hotels, where prices are a fraction of those in the UK, France, or even Berlin or Amsterdam. Paris and London property prices are at least three to four times more expensive than prices in Lisbon and Porto, still among the cheapest real estate markets in the EU despite their fabulous outperformance since 2016 in terms of price per square feet.
Lisbon fascinates me because of its maritime and colonial history, including the Portuguese moment in the sun five centuries ago in Oman, Ras Al-Khaimah, the Gujarat/Konkan coast, sultanate of Malacca, Ming Canton and Tokugawa shogunate Japan. Yet I was horrified to see historic buildings from the post 1755 earthquake Marquês de Pombal era in dire need of renovation even in central Lisbon prior to the 2012 golden visa program.
The end of rent controls (Zamalek? South Mumbai? Manhattan East Village?) was the catalyst to attract foreign investors, as well as tax breaks and the golden visa offer. Now, former forlorn palazzos once half ruins, are hilltop boutique hotels where guests gladly pay €300 a night for a luxury Old World experience. Tourism, real estate and foreign capital inflows triggered a six year economic boom in Portugal. This is success on global scale and the Aga Khan’s presence in Portugal will only amplify the market’s global appeal to the Khoja jet-set.
As Christine Lagarde will continue Mario Draghi’s easy money policies in the EU, as investors recoil from sky high prices in Berlin and Amsterdam, Brexit risk and “manifestation” risk in comically expensive (and rainy!) London and Paris (now the Louvre is closed by the gilets jaunes strike hordes), expect Lisbon will retain its appeal to foreign investors eager to take advantage of its golden visa, its golden sunshine, its golden hilltop sanctuaries, castelos and villages. I believe tourist hotels that create local jobs are the best investments in Portugal.
Office yields have compressed to levels that make no sense to me now and I concede there is speculative froth in some ritzy districts of both Lisbon and Porto. In the age of E-commerce, most shopping malls will share the fate of brontosaurus, so I am not interested in retail. Logistics/warehouses make more sense in one of the world’s great port cities. 2020 will be the year of listening to fado in Alfama and deal hunting in the Avenida da Liberdade for me!
Lisbon, capital of a nation that attracts 12 million tourists a year, boasts a GDP of $100 billion and is home to 28% of the Portuguese population. Lisbon was centuries old before Londonium, Paris and Rome were founded and is the oldest city in Europe apart from Athens. Archeological excavations have discovered Phoenician settlements as old as 1200 BC, demonstrating that Lisbon was a global trading hub for Mare Nostrum (the Roman Med!) – and has a container port whose scale rivals Rotterdam and Hamburg in 2020. Lisbon is to Portugal what Paris is to France – the hub of finance, education, trade, the arts, industry, government and tourism. I totally agree with the ancient Greeks and later Strabo and Pliny the Elder who argued that Lisbon’s very name was derived from Ulysses, the mythic hero who sailed to the far ends of the world.
I can still feel the ghosts of medieval Umayyad and Almoravid souk merchants in the cobblestoned lanes of Alfama district, derived from the Arabic al-hamma. I can imagine the galleons of Magellan and Vasco da Gama sailing down the River Tagus to create a global trading network in the Age of Discovery – Portugal was once an epicenter of globalization. This magnificent history, this unique location, this ethereal beauty, make Lisbon one of the world’s most attractive property markets for me in 2020 and beyond. His Highness the Aga Khan’s vote of confidence is the ultimate icing on the cake for literally millions of potential homeowners in Lusitania!
