There is no doubt that over the last few years we have seen a massive increase in the amount of money invested in European property markets by Chinese investors. This fact has been confirmed by the Portuguese authorities with almost 80% of Portuguese property investment visas going to Chinese investors. A total of 318 visas have been awarded to those who invested a minimum of €500,000 in the Portuguese real estate market. Is this something which other battered European property markets should consider?
At this moment in time similar schemes are available in Spain, Greece and Cyprus although the minimum funding requirement does vary. There is no doubt that it has attracted interest from non-European investors and indeed in many cases could have saved local European property markets from further short term downside.
Can this continue forever?
At this moment in time Portuguese, Spanish, Greek and Cypriot governments are desperate for external funding to support their real estate markets. As we have seen in countries such as the UK, a recovery in the property market is often a precursor to an eventual recovery in the local economy. It does seem as though these governments in question, those offering property investment visas, are betting everything on the property market.
Quote from PropertyForum.com : “Portugal’s so called Golden Visa which gives overseas property owners a residency visa is tempting buyers from Asia to invest in residential and commercial real estate worth up to €100 billion by 2014.”
While even the local population will be glad of any external investment assistance during these very troubled times, there will come a point when enough is enough. This will then give the local government a significant headache because they will effectively have sold their local property markets with property investment visas attached and then suddenly have to take them away. Many international investors may feel as though they have been used as a means to support the local property market but in reality there is a good chance they will have made a significant return on their initial investment.
Does this create false demand?
Some people are suggesting that property investment visas create false demand for real estate and while they could have a point, we are talking about serious investors and significant amounts of money. You could also argue that due to the ongoing European economy issues there is significant long-term potential for the Portuguese, Spanish, Greek and Cypriot real estate markets. Indeed the added carrot of a property investment visa could be argued as a way of focusing investor attention on these markets?
There is some concern that once the property investment visa option is taken away we could see a drop-off in demand. However, the likelihood is that the governments involved would not consider ending this particular scheme until they were sure that their local real estate markets were capable of standing on their own two feet, hence there would already be support for prices at that moment in time.
It is interesting to learn that 80% of Portuguese property investment visas have been awarded to Chinese investors although this will come as no surprise to those who follow the international real estate market. Chinese investors are now prominent in areas such as Australia, the UK and indeed Spain, Portugal, Greece and Cyprus also seem to be on their radar. There is enormous investment funding emanating from China and due to changes in the Chinese economy this is likely to continue for some time to come.