On February 11, 2020, Secretary of State for the Presidency of the Council of Ministers Tiago Antunes told Portugal’s TSF radio station that markets should be calm and that there is no need for the knee jerk reaction to the Feb 6, 2020 vote, were the proposal to amend the investment criteria of the famous Portuguese residence by investment programme was passed by parliament.
The secretary of state and other legislators of Portugal have tried to calm markets after the vote came out in favor of the proposition.
Analysis
Public Interest issue
The aim of the government of Portugal is to try and control the over saturation of property prices in and around central Lisbon and Porto. The issue with property prices surfaced when the general public more loudly voiced their concerns as to how it has become very difficult for the working class to afford to acquire residences in or around central Lisbon and Porto.
When the government of Portugal decided to hear the cries of the public, this proposed change to the residency law was accepted by parliament. The government, in essence, wants property prices in Lisbon and Porto to stabilize or possibly drop to levels that are within reach of the middle class.
Issue - Harm brought forth to the Real Estate sector
The government of Portugal does not wish to harm the real estate sector who at the time of the vote of Feb 6, 2020, had billions of Euros at stake. Numerous developments in the areas where foreign investors were primarily interested, were, at the time of the vote, perceived to have lost their appeal to foreign investors buying for the purpose of the residence status.
Within days, many deals were canceled, many developers called their banks to discuss what will happen to their loans in the case they were unable to sell their developments, a myriad of a chain reactions that could have hurt Portugal’s economy massively, with collateral damages that could ripple to other sectors.
Hence the secretary of state’s position of February 11, 2020.
Who are the main stakeholders in this ordeal?
The real estate sector, The SEF department and the Portuguese Legislative team that is heavily influenced by the Left block Party are the main players in this debacle.
The real estate sector is one that has benefited from the boom since 2014. Many projects where off-plan and where successfully delivered, many more are still on paper, but have also been sold to the public.
The SEF department is the immigration arm of the republic. It processes applications of foreign investors who buy assets for the purpose of acquiring residency. SEF will not allow a bottle neck to form, if the new law sets a deadline to submit applications, which is what the government is now labeling as a “Transitional Period”, an influx of applications will hit SEF windows prior to the expiry. During the consultation process of drafting the law, SEF will not allow this.
If you, as an investor, knew that the last day to submit an application for residency by investment is Dec 1, 2020 you will aim to make your purchase and send your file to SEF before this date, so will all other investors around the planet, immigration advisors and real estate brokers. The SEF department does not have the capacity to process this type of influx from all those angles! The SEF department will either suspend applications intake, put a cap in place, or await the deadline to be formally announce and then beat it by a few months and issue the suspension then with immediate effect. To illustrate, the government could say that the last day to submit an application is Dec 1, 2020 and withhold a deadline of when the purchase was made. SEF will then, sometime around June issue an announcement with immediate effect and say that assets purchased after this June 1, 2020 date will not be eligible for the Residence application submission. Application intake influxes are not to be taken lightly. They could be crippling.
The Left Block will most likely push forward in the direction of the vote regardless of the collateral damage that many sectors will sustain.
Risks
The obvious risk to foreign investors is the ineligibility of an asset after it has been bought and before an application is submitted.
If an investor is stuck with a 500,000 Euro apartment that cannot be used in an immigration application, the government of Portugal will have a judicial fight on its hands. And to those who do not have the will to fight and chose to cut their losses and sell the property at any price, the market will have an oversupply. The over supply will surely drop property prices, but then again it will damage an entire sector.
Developers whose projects require in excess of December 2020 to complete and who are relying on the ability to sell their developments after completion.
Recommendations
Public interest
The government of Portugal must gracefully introduce this new amendment with creative transitional provisions that would safeguard the interest of all stakeholders. Many theories could be tendered to cater for this objective.
General Public
It is safe to assume that an abrupt decision by SEF, that will impact applications intake is on the way. It is only smart to factor this potentiality into the decision-making process before buying an asset in Lisbon or Porto.
How much time do I have?
Investors’ biggest concern is whether or not the asset they are about to buy will be eligible for the programme or not. Given how long it takes to write a law, get it approved by parliament and finally publish in the gazette, we would assume a 90 day safe period from the date of the vote to buy the assets. This puts May 6 at the deadline to buy the asset. After an asset is bought, investors will have a layer of protection supported by the Portuguese constitution and European parliamentary laws, where no department can issue a law that will cause prejudice or harm to persons who have followed the provisions of a previous law; so based on the spirit of this legal principle, we would assume July 30, 2020 as the deadline to submit formal applications to SEF.
Any delays beyond this period will increase the risk of purchasing an asset that may not have the time later on to be of utility in the residency application.
By Muhannad Samara, for ACIC Inc.
February 12, 2020 – Lisbon
