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Buying property in Portugal is no longer a route to a "golden visa" giving residency rights but foreigners who want to secure one can still put their money into investment funds, which now anticipate a boom in inflows.
The Portuguese government has tightened the rules after initially saying in February 2023 that it would scrap the golden visa scheme, which has been blamed for exacerbating a housing crisis. It had already sought to redirect property investments from big cities to depopulated areas.
The scheme, which offers wealthy non-EU nationals who invest in Portugal the right to live in the country, has attracted 7.3 billion euros ($8 billion) of funds since its 2012 launch. Most participants are from China, Brazil and the United States.
Around 90% of that money went into real estate, sparking complaints it was driving up house prices in one of western Europe's poorest nations.
Putting money into investment funds has been an option under the Portuguese scheme since 2015, but is now expected to be its principal channel. Other routes include donating to cultural or research projects.
"Real estate has always taken the focus away from the other options," said lawyer Vanessa Lima, from Prime Legal, which among other services helps foreigners apply for the visa.
"The main type of investment will (from now on) be in funds - there is no doubt."
To be eligible, applicants must transfer 500,000 euros to one or more qualifying funds.
Portuguese stock market regulator CMVM, which certifies funds, said it could not provide a list of those eligible for golden visa investments. Lima estimated there were around 40, although some may not still be open for investment.
Among those hoping to benefit is sustainable agriculture investment fund Pela Terra, which is already helping to regenerate nearly 1,000 hectares of farmland in the Alentejo region.
"The new regulations are wind in our sails," said Pela Terra's Alex Lawry-White.
He described the changes as a "correction" of rules that had created problems such as higher house prices, adding: "The golden visa programme should have the community ... at the centre of its focus."
Jim Davidson, a Pela Terra investor from the United States, said real estate was still an option when he started the golden visa process but that he had been aware of growing negative sentiment toward the scheme. He said Pela Terra was more aligned with his values and ethics.
Another fund, Sharing Education, invests in international schools in Portugal.
"We have noticed an increase in interest from investors ... because they are looking for something different," its head of investor relations Goncalo Santos said.
NECESSITY
Although there is no official data yet, three lawyers specialising in golden visas told Reuters they expected funds to soon represent 80-90% of all such investments. But with property closed off, some said less money was likely to make its way to Portugal overall.
"People are doing it not out of a desire to invest but out of necessity ... to get the golden visas," said Francisco Barata Salgueiro, a senior partner in charge of the foreign investment department at EDGE International Lawyers.
Contributing at least 250,000 euros to cultural projects or 500,000 euros to scientific research - or generating 10 jobs - can also help secure a golden visa. Applicants must allow criminal records checks and show they have no outstanding debts.
Prime Legal's Lima believes more funds will be created now that real estate is no longer an option - and that some existing funds will reorient themselves away from property - and that donations towards cultural projects will become more popular.
But Nuri Katz of advisory firm Apex Capital Partners said excluding real estate investments would make Portugal less attractive to investors, who would turn to other countries' golden visa schemes. Neighbouring Spain is among those that still allow property investments.
The fact that eligible funds need only invest 60% of their cash in Portugal would further reduce the scheme's benefits for the nation, Katz said.
Lawyers and advisory firms have long complained the golden visa process is slow and bureaucratic, and some wanted more clarity about the new rules, which bar both direct and indirect real estate investments.
"If a fund wants to invest in a factory ... is this indirect investment in real estate or not?" EDGE's Salgueiro asked. "We don't think so, but these uncertainties have come up.
Lawyer Raquel Cuba Martins said some of her clients were also concerned about political risk. Portugal will hold a snap election in March after the government collapsed following a series of scandals.
"We've already had (application) withdrawals because of legislative instability and the lack of certainty," Martins said. "(Others) prefer to invest now and start the process rather than wait for a change a new government might make."
